Excerpted and restated into Tips, Notes, and Observations:
“Double Your Profits in 6 Months or Less:
78 Ways to Cut Costs, Increase Sales
& Dramatically Improve Your Bottom Line”
Book by Bob Fifer — www.fiferassociates.com
Throughout his book, Bob aims to help senior leaders and managers make their employees (and themselves) be more action-oriented, bottom line-focused and to deplore bureaucracy and protocol. To this end, he divides costs into Strategic Costs vs. Non-Strategic Costs.
Strategic Costs are the costs of “all those things that clearly bring business profits and improve the bottom line” if spent well. These include salespeople (not sales managers), advertising that works, and R&D that you can commercialize … those that “truly enhance the top and bottom lines from those that are wasteful and unlikely to pay off,” he says.
Non-Strategic Costs are all other costs that are “necessary to run the business but don’t clearly bring in more profits.” Cut those that don’t cause a loss in profits. Be creative and forceful in eliminating redundancies, waste and unnecessary ‘creature comforts.’
The overall aim to improve profits is to spend as much as you can justify for strategic costs (during good times or bad) while ruthlessly working to cut non-strategic costs “to the bone.” He suggests you be skeptical and suspicious of every single non-strategic costs and assume it can be eliminated unless proven (or justified) otherwise. In other words, the burden of proof is on justifying them and not on proving they need to be eliminated. And, at first, it might seem impossible or counter-productive or seems likely to be hurtful somehow to be without some costs, but people get creative and make adjustments to achieve the savings, especially when some amount of this freed-up money goes to increase employee compensation. Get a clear idea of all the real money that flows out the door.
Fifer Tip: Order every single report to be stopped, and wait to see who ‘screams’ about not getting their report and find out why. See if they can justify their continuance. This can reduce the time and effort put into unnecessary reports.
Fifer Note: “The ‘excellent’ manager will have a ‘built-in’ cynicism about processes and that they must be rigorously questioned.” His focus will be on the results any of this brings. This goes for memos and meetings, protocols and forms to fill out, number crunching and fiddling with technology. The point is that results are what is most important. Question all activities and processes (especially the new buzzword ones) on whether they are or truly will be making money.
Fifer Tip: “Never spend a minute quantifying something you to which you already know the answer,” and “Never spend more than a few minutes quantifying something when there’s a reasonably high probability you know the right answer.”
He goes on to give an example of someone paying a consultant $50,000 to find out what the size of their market was, to help determine what percentage the firm had. And, the question is, “Who cares?” In other words, what difference would knowing the market share mean when focusing instead, the money could be spent on improving the money-making activities.
Fifer Note: “No business ever made a penny on a forecast. Optimizing profits is what the business is here for, not predicting them.” The take away: Can you really justify all that time, effort, cost … on creating and number crunching in an attempt to accurately update those monthly, quarterly, and yearly ‘forecasts’? Can you? Why not slim that down and spend the freed up money on key money-making activities? Fifer professes that most managers demand more data than they need when they should rely more on instincts and experience, even with limited data.
Fifer Note: When it comes to executive compensation, some CEOs are worth more than what they are paid. But, “the mediocre CEOs and managers never met a process they didn’t love, who don’t focus on profits and don’t add true value, are overpaid. The issue is not executive compensation, but executive competence.”
Fifer Note: Weak managers over-quantify and over-delegate, while “superb managers study their business only in general but manage in detail … the important details.”
Fifer Note: “The goal of the profit-maximizing organization is not to maximize differentiation, but to provide those elements of differentiation that the customer is willing to pay for and not those that the customer is not willing to pay for.”
Fifer Tip: Sort your daily tasks into three categories:
- those that contribute to raising revenue (e.g., new business) or cutting costs,
- those that contribute to keeping current business and maintaining internal operating systems, and
- those that someone wants or expects you to do but which don’t truly add value to increasing or maintaining profits or needed systems.
Do all in Category 1 before starting on those in Category 2 and all in Category 2 before starting on those in Category 3. Aim to get all C1 done by Noon and all C2 by mid-afternoon. Whether or not you get C3 tasks done, quit them when you feel you’ve worked enough for the day.
He comments on managers’ tendency to avoid the more challenging C1 tasks, procrastinating by focusing their time, energy and attention on the often easier, less threatening C3 tasks, ending up being ‘too busy’ to do the most important C1 tasks.
He also suggests aggressive, tight deadlines for tasks, as near-term as possible (even challenging), as this will force you and others to ‘soul search’ and eliminate non-value producing tasks from schedules. This helps everyone to avoid the truism that “tasks tend to take the time allotted.” Push to have things and decisions made now, in real-time, not later. This will increase the focus on productivity towards increasing profits.
Fifer Tip: Inform employees that anyone wanting to add an expenditure category, or spend money on something like new furniture, hiring employees, or hiring outside services, must ask you personally for permission … and see what justifications prove worthwhile. Do this for the smallest of costs, too, since they tend to get overlooked.
Fifer Tip: The most painless place to start cutting costs is with your suppliers of goods and services. This cost area also tends to offer the biggest impact on profits, as it most often tends to get ignored by the business managers who focus more on customers and employees, leaving cost-cutting to those who manage suppliers. Isn’t it easier to get suppliers to charge less than make customers pay more? And, as typical with many businesses who have a higher supply cost compared to operations, the actual dollar savings will be higher at each percentage point of savings from cutting supply costs vs. operation costs.
Don’t rely on your Purchasing Manager to get tough on costs, as he interacts with suppliers often and develops personal relationships that can make it harder to reduce costs. You or someone you can trust to be tough, perhaps someone outside the Procurement Department, should take the role of the ‘bad guy,’ and scrutinize every supplier cost, starting with the highest cost first, and issue the orders to obtain lower costs.
You can start with a blanket order to reduce all supply costs by some percentage (e.g., 3%), which gets passed along to suppliers, and see which of them comply. For those who don’t, cut that percentage from their bill and point out that this is the reduction they need to make to continue with you.
Fifer Tip: Put your top 50 supply items (in actual dollar cost) back up for bid. Or, announce to suppliers that every price increase they want will automatically put that supply area back out to bid. Perhaps just telling them this will reduce or eliminate their increases. If they resist, find others with whom you can do business, and start planning to take them another one on as a supplier, while at the same time, tell your prior supplier that you’ve terminated the relationship. Tell them that you are seeking competitive bids from others, and if they want, they can bid again, but that perhaps they shouldn’t bother because they already said they can’t lower their price. Sometimes you’ll get an immediate price drop if you give them a good amount of business and they want to keep you. And, perhaps you won’t have to seek the other bids after all. Take their initial “No” as “I’d rather not.”
Aim for a high number overall, e.g., 30% on services, 15% on products. If you can find out what your competitors or similar organizations are paying, and you find they have a supplier at a lower cost, go to that supplier and ask for the same deal. Or, go back to your current supplier and ask for the same price.
Fifer Tip: Use less of the goods and services that you currently buy. For example, take a hard look at office supplies, computer goods, and services, the use of outside consultants, delivery services, and more. Don’t let anyone see the level of use or even the use at all as a right that you’d be rude to question.
IT / MIS costs … Fifer says that letting your MIS or IT people make the purchasing decisions is akin to letting your interior decorator decide on their own how much to spend. Instead, with any requests made from IT / MIS, get them to quantify any gains they believe will come from original purchases, replacements, upgrades, etc. And, take a look at computer usage. Does every employee need his own computer, as they need to use it all the time? Which computers can be shared?
Fifer Tip: Look hard at Research and Development expenses. Keep the R&D employees focused on making money for the company in specific, customer-oriented and cost-saving ways. Don’t be intimidated by how knowledgeable about the science the scientists and engineers are. It’s likely they don’t really know management and how to make a profit. Fife points out that Bell Labs had ‘more PhDs doing more advanced work in leading-edge areas, but they brought in fewer new commercial products to market in a timely fashion that any other R&D organization in the world.’
The more profitable firms in the world spend more than their competitors on Customer R&D (focused on tailoring products to customers’ needs), and Process R&D (focused on lowering manufacturing and operations costs), a little bit more on Improvements to Existing Products, and much less on Basic R&D.
Ensure that the scientists who make commercially successful breakthroughs, operations or manufacturing process breakthroughs get more attention and rewards than those who just make scientific breakthroughs.
Help the R&D employees focus on obtaining technology transfer from one department to another, sharing improvements among your different departments or subsidiaries.
Fifer Tip: Look at everyday expense items, like:
- First-Class Travel – switch everyone back to Coach.
- Other Travel – be sure it is truly necessary.
- Inappropriate or Excessive Expenses – spot check the expense sheets and review them in total now and then.
- Furniture – stop all expenses on furniture when you can use it from other unoccupied offices.
- Office Supplies – cut it to the minimum, and never let a supplier take inventory and create the order to replenish.
- Copiers and Office Equipment – share more copiers, even if people have to walk further to them.
- Maintenance Contracts – cancel these in general, and insure only the big, potentially devastating risks. Self-insure the others, as needed. Most repairs are a relatively low-cost item.
- Subscriptions – Get people to share magazines and journals, data services and reports.
- Telephones – use the lowest cost carrier; downgrade your phone equipment, and outlaw any long-distance personal calls if they are extra charge; spot-check phone bills.
- Contracts with Suppliers – best never to sign one, since it can lock in higher prices, and when conditions change that offer lower prices, you can’t get them. Keep the price flexibility.
Fifer Tip: Office space rules:
- Chose a lower-cost suburban location.
- Double or triple people up when possible.
- Eliminate unused airy central space.
- Focus on functional not luxurious (e.g., a very roomy office with unique carpet and fancy, expensive furniture).
- Don’t get stuck owning too much of the wrong office real estate; focus on renting instead.
- As CEO or Senior Leader, dare to give up your own office space and let your secretary keep all your files at her desk. Use the office of someone who is traveling. Borrow a conference room for meetings.
Fifer Tip: As CEO / Owner, sign all the expense checks yourself if you can, or at least approve each one before the Payables person signs them. You can meet twice a month or so and get through them soon enough. Or, if this could take too much time, sign some percentage of them, as this gives you a chance to see what’s getting purchased and what can be cut.
Fifer Tip: Capital Expenses need to be scrutinized and managed much more vigilantly than other expense items. Some of the larger corporations will spend hundreds of millions or even billions but not really ask themselves if it’s really needed. Their five-figure market research or advertising costs will get more scrutiny than their hundred million dollar capital expenses.
Fifer Tip: Extend your Accounts Payables. Most suppliers will wait longer rather than lose you as a customer. Extend as far out as six months, if you can, among those suppliers who will tolerate it. Don’t pay a bill until the supplier asks twice.
Fifer Tip: Run your inventory as low as you can.
Fifer Tip: Focus on meritocracy and reward people based on performance in contributing to the bottom line. For those who do a lot of things and make a lot of noise but don’t truly contribute, give them a list of several things they need to accomplish to avoid being let go and see how they do. Let them go if they don’t achieve them soon enough.
Fifer Tip: Strongly resist hiring more employees. Having scarce resources forces people to prioritize and do only the truly worthwhile things.
Fifer Tip: Pay generously. Get people to feel they benefit by helping to create improvements to profits so the company is highly profitable.
- Pay your direct bottom-line impact employees more generously than other companies do.
- Pay the others above-average levels.
- Allow wide differences at any level, based on performance and contribution to the bottom line.
Fifer Tip: Employee benefits are not written in stone. Be flexible and change contributions and coverages as you need, to keep costs in line.
Fifer Tip: Do not give regular, non-meritorious bonuses. Nor give regular, meritorious bonuses at timed intervals. People come to expect them, they lose their motivational effect, and managers lose their courage to base them truly on merit. Instead, give them ad hoc, whenever they are deserved, and never when they aren’t deserved. This reinforces the clear relationship between performance and reward.
Fifer Tip: It’s cheaper to give out fancier titles than raises.
Fifer Observation (perspective?): One person in four could be let go from almost all white-collar organizations without impact. Even, up to one of two persons … he believes. And this would be with no lesser value to the customer.
Fifer Tip: Of the two types of workers: 1) Productive Workers who directly contribute to the bottom line and to customer satisfaction (e.g., salespeople, client account managers, ‘workers,’ and, 2) Managers or Administrators … eliminate as many managers and administrators as you can. Keep only those managers who know how to maximize profits, and give them “very broad, loosely-defined entrepreneurial responsibilities, and then very little hierarchy or bureaucracy.” Eliminate the paper-shuffling administrators, the ‘professional’ managers. Make your VPs and other senior managers take on the responsibilities of the type of work their direct reports do, too. Or, another way to do it is to make your best, profit-maximizing direct report also the VP or senior manager of the group. The point is to make your managers ‘working manager’ who are “doers” that manages on the side. His or her direct reports will have a manager who truly knows ‘what it’s like out there’ and are in touch with the market and not just the management processes of the organization.
Fifer Tip: Take a hard look at your internal staff functions. It’s likely there are far more people than you need in the legal, HR, accounting, finance, MIS, R&D, and Engineering departments. Consider reducing them by 25% to 50%, or 5% at a time, if you feel you need to be cautious. This will force the employees to reduce and eliminate the non-contributing work. Help them by clearly stating which work is valuable and which is not.
Fifer Tip: You should allow the hiring of temps, outside contractors and consultants only when doing so contributes directly to the bottom line and not just to be a confidant and ally of one person in the business.
Fifer Tip: Eliminate typing of memos. Hand write your memos and save secretarial time and cost, as well as supplies. You’ll reduce the number of secretaries, too.
Fifer Tip: Reduce the proliferation of data in your company. Cut way back on the flow of internal reports, cost accounting reports, number-crunching statements, etc.. Eliminate the “mind-numbing reports in strategic speak and mission-objective-goal speak and human-resources-teaming-alignment-process speak.”
Get rid of excessive number-crunching. Instinct, judgment and rough numbers are all that is needed in the vast majority of decisions, not the detailed, paper stacks of precise numbers. Focus on an ‘actionable’ level of accuracy. Get your number crunchers to focus on what is really needed by the real decision-makers.
Encourage any reports to be direct, blunt, full of content and free of ‘process.’
Don’t allow people to automatically CC everyone who might be interested. This is time-consuming to read and decide whether to read them or not, which can be distracting.
Fifer Tip: Streamline your meetings. Have as few people as possible in them. Keep them very short and focused on decision making. Five minutes if often all that’s needed. Thirty minutes certainly is. Longer ones may be necessary every few months. And, keep the discussion productive.
Eliminate off-site meetings. Rarely are they needed, yet they are costly and take people away from profit-producing activities.
Fifer Tip: Cycle through your cost-cutting efforts regularly, after everyone had settled into the new ways. You may be surprised to find even more savings the next time around.