Many large companies are stuck in a tough place: their costs are so high, it constrains their growth, but cutting costs can rip the heart right out of the organization.
This may seem like an intractable problem, but it’s not. The solution is to empower teams to cut costs in a manner that funds - rather than erodes - their own future.
Launch a “Margin for Growth” Initiative
Large companies often have extremely complex supply chains that over time become riddled with inefficiencies. They tend to be both more expensive and less flexible than the marketplace demands.
But cost-cutting programs are notoriously thankless endeavors. They are detail-oriented initiatives that often push participants to come up with 600 teeny ideas, instead of five or ten comprehensive solutions. Plus, few employees get rewarded in any significant way for helping to cut costs. The norm is more like two words (“nice job”) and a quick pat on the back.
The alternative is for senior management to make a deal with the folks who work for them: any waste you eliminate will be kept to fund the growth of your business. In other words, the cost savings don’t disappear somewhere into the haze of corporate finances; they stay in your budget, and you can use them to grow your business.
This Margin for Growth approach provides a powerful incentive for managers to root out waste, because most are compensated based in some measure on their ability to grow revenues. It motivates all to think big instead of tiny. Even more importantly, it encourages different managers in different areas to talk with each other.
Working with a client who successfully used this approach, I once witnessed two VPs during a Margin for Growth session. They had long worked in offices almost next to each other, but had never talked at this level of detail about big ideas for increasing efficiency. In short order, they started listing one solid idea after another.
In another instance, one VP took all the cost savings we found, and he got permission to put the saved money back into his marketing budget.
In big companies, remember to think big. The teeny initiatives are time-consuming and difficult, but not nearly enough to make a difference. In contrast, each big idea around raw materials, shipping, labelling, or financing could deliver at least a million dollars in savings.
One executive with whom I worked promised headquarters $25 million in savings, a bold move to say the least. He delivered on his promise, in large measure by bringing many people out of their silos and literally together in one room. Here again, the Margin for Growth positioning captured the attention of many participants and gave them tangible incentives to think big.
The lack of communications between people in different silos can be amazing. Margin for Growth breaks down those silos, and creates a tangible sense of accomplishment and optimism.