Although many would argue that we have come a long way since Frederick Winslow Taylor in 1899 first proposed the “scientific management method,” it appears that efficiency, the ratio of input to output of a given system, is still the primary measurement tool of leaders in the corporate world. What may have changed somewhat is the treatment of people within the system, but the overall focus is still the same. As I’ve mentioned before, even more contemporary approaches like lean manufacturing or six sigma can easily turn any business into a numbers game. In response to the current recession, companies are caught in a cycle of attempting to become more and more efficient through cost-cutting and attempting to create more output from less input.
Becoming married to the measure can be disastrous. A client of mine, prior to the recession, had a cost ratio in equal to 11% of sales. In late 2008 and early 2009, sales dropped not only drastically, but quickly. By February, the measure of cost had increase to 18%. The immediate and all-hands effort by the company executives focused on one question: “How do we get our cost ratio back down to 11%?” Last month, this critical number was tracking at around 12%. Have they been successful in their efforts?
If the measure is the meaning, then yes. They are nearly back to the cost balance they had prior to the recession. However, they have lost nearly 20% of their workforce, the employees that they have are suffering in large part from shell shock and their leadership body is disoriented as to which demon they should be chasing…cost or sales? In a recent discussion, I asked them how they thought they would do in their employee satisfaction survey this year. They don’t expect it to go very well.
My point is not that costs are irrelevant or that companies should let themselves go out of business because their margins disappear when sales drop. However, many have adopted a philosophy that assumes efficiency as the primary driver of business success. Leaders in this case become accountants…monitoring the use of paper at the copier and cutting back on the true drivers of profitability such as customer service. This cost obsession creates strong silos and turfs within the organization as managers focus on THEIR expenses without regard to the bigger picture.
Most damaging is that times such as these call not only for prudence but for creativity and innovation. Innovation happens in the white space…that extra room that employees have to think or experiment or take risks. Leaders who want to be successful have to remember that employees are not machines…they can’t be tuned and tweaked like a car engine to deliver greater results. That is one of the reasons leadership can be so difficult. The answers to the questions of success are usually multi-dimensional. It’s not just about cost and at the same time it’s not just about innovation. It’s about finding the right balance at the right time.