Thursday, September 22, 2005

Any Idiot Can Cut Costs

Everyday it seems that I read about another company cutting costs to regain profitability. This morning it was Sony. According the Associated Press article, Sony will implement a "bold turnaround plan" by cutting 10,000 jobs and slashing factories. This amounts to about a 6% cut in their workforce along with shutting down 11 factories. The article also includes part of the Sony official statement, "These reductions will help streamline our operations and enable us to operate more efficiently". My initial reaction was "Yea, right".

These cost cutting headlines, many times, gets thrown together with the Lean Manufacturing approach to improvement. First point, any headcount reduction as a result of any lean efforts will mean disaster. It will not work. Second point, to regain profitability you need to grow a business and cost cutting is not growth. Finally, any idiot can cut costs. It takes true leadership and teamwork to grow a business.

Another major mistake in trying to implement the lean approach in American business is to focus on the cost cutting tools and not the growth strategy. You MUST have a growth strategy to succeed.

The key is to free up resources through your lean efforts and let them loose to work on the growth opportunities. This can be any number of activities. For example, if you are losing customers, put a group together to help you get them back. Their only goal is to find out what your customers really want and give it to them. Other opportunity areas include PM programs, safety improvements, wellness programs, R&D projects, new products, Six sigma projects, or even process documentation. The focus should be on growth!

In the case of Sony, imagine losing 10,000 employees. From a bottom line standpoint, that could be considered a significant savings on operating expense. But when you lose 10,000 bodies, you also lose their brainpower. Now, just imagine what the brainpower of 10,000 can do when applied to growing the business!

3 comments:

Chet Frame said...

You are right, Mike. When we started our Lean push at a Tyco plant we used the "no employee reduction" logic to sell the change to our employees. We were able to improve the throughput for the same facility from $38,000,000 to $63,000,000 in three years, and we increased the number of peole employed.

Nuno Pinto said...

I think top management rarely belives in the benefits of Lean. They don't know Lean or they think that might take too much time. So they look for a fast way of cutting costs.

Anonymous said...

Kind of like loosing weight by cutting off your leg. It works at reducing weight, but to get fit and trim requires a whole different approach.