Anyone Can Cut Costs, Look Good and Go Out of Businessby Bill Bellows
Guest post by Edward Martin Baker. A version of this post originally appeared on Aileron.org.
Years ago, a “friend” who thought he was a mechanic, as did I, offered to improve my car’s performance. He removed parts of the engine, fiddled around with them, and reassembled them. When he finished, I saw some of the engine parts on the ground next to the car. He said that they were not needed and did not know why these extra parts were put there in the first place. The car ran for a short time and then it died.
Any business, driven by today’s financial numbers, can make performance look better in the short-term by reducing the number of “parts” such as by laying off employees, deferring maintenance, sourcing to the lowest price supplier, even selling parts of the business – but what about tomorrow?
How will these actions that reduce visible costs affect the invisible costs produced by a system whose capability to produce quality products and services has been degraded? What will happen to the reputation of the enterprise as customers don’t return?
Visible costs typically are treated as if they are the cause of poor financial performance and actions are taken to reduce them. However, the Deming school of thought views costs as ends, not means, as results, not causes. Excessive costs are symptoms of the underlying health of the system.
A healthy enterprise is like a healthy body: all of the parts and processes work together as one whole.
When a part is removed the rest of the system will have difficulty trying to compensate for the loss. Removing parts of the system to reduce costs degrades the health, i.e., the wholeness of the business. A system can’t function as an integrated whole when essential components that other people and processes depend on are missing. “Corporation” comes from the word “corpus,” which means a body.
When parts of the human body don’t function well, or at all, the person is said to be “sick.”
Dr. Tom Johnson, Professor of Accounting and advocate of Dr. Deming’s management philosophy, explained that if a business wants to ensure satisfactory and stable long-term financial results, management must work on improving the system from which its financial results emerge. (“Manage a Living System, Not a Ledger,” Manufacturing Engineering, December 2006).
At Aileron, we fervently believe privately held business fuels free enterprise and raises the quality of life for us all. As businesses move beyond the start-up phase, a systematic approach to your business is critical to sustainable and strategic growth. We call this approach Professional Management, and have developed a system to implement it influenced by Dr. W. Edwards Deming and other great thought leaders. Dr. Deming’s timeless teachings have been, and will continue to be, a driving influence because we see his philosophies work.