Cutting Costs or Slow-Motion Suicide

What factors cause business failure? Certainly there are many external burdens such as our draconian corporate taxes and regulation that depresses American companies against foreign competitors who pay little or no taxes.  But beyond that, America has a wildly popular and successful internal business management recipe for putting our own companies out of business: shift focus from getting more profitable, to “cutting costs”.

It’s a subtle yet critical difference.  “Cutting costs” seems harmless and sounds sooo responsible.  But it tends to ignore the value and necessity of essential core technical expertise and instead mislabels them as financial liabilities that could be trimmed.  Is it a matter of ignoring, or of ignorance?  Instead of pressing groups for ideas and project execution to improve profits, they press for input on which essential business functions to cut. The mantra is usually “we all hate to do this, but we don’t have any choice.”  The result of this lose-lose is a painful decision to eliminate the very expertise that drives the effectiveness of Continuous Improvement, visionary process quoting, training, process stability, IT systems, and much more.  In short, it creates a top-down management culture of plant-closing through “slow-motion-suicide”.

In a superb article, noted industry expert and author  Bob Sproull summarized it like this: “It was also evident that operating expense had a functional lower limit, and once you hit it, you could actually do more harm than good to the organization by reducing it further.”

I’m not talking about whether you can trim your controls engineers from four to three positions.  I’m talking about trimming from two to one, or even eliminating the position completely – without any analysis of the ROI of value-added cost-reduction projects, or of the critical production support roles that could double or triple downtime and late shipments because of the six dozen automated systems out there on the plant floor. Sounds crazy because it is, but some company executives are crazy enough to do it.

Unfortunately, if you embrace a path that cuts the costs of the assets that produce income, you are essentially downsizing the future profitability of the company.  Cutting profit-generators will make it impossible to remain competitive: the company will  go out of business.  I hope my thoughts can spark a good discussion and some effective ways to recognize and resist these suicidal business practices in your company.

One example of this is the trend I’ve noticed toward trying to hire “jack-of-all-trades” engineers.  They want a trained engineer who works like a tech (“hands on”, “bias toward action”) and yet can do CAD drafting, IE functions, Six Sigma, Lean, PLC programming, robot programming, welding systems, program launch management, capital appropriations requests, and executive powerpoint presentations.  Apparently they want to hire a messiah like this (for the pay of a mediocre one-discipline engineer) to handle their 80-robot process automation and launches, because they don’t have quality or control or welding or maintenance engineers to do the work and can’t get approval to hire them. They might as well post for an engineer who walks on water and has a standard 12/6 work-week. What will it take for them to realize that while they can hire someone who lies about having all those skillsets, the extremely rare one who actually might is either being paid $85k+ (USD) as an engineering manager, or has started his own systems design and integration company?

Ken Payne of The Columbus Group recently pointed out to me that while classic Industrial Engineering (IE) breaks everything into the Man, Machine, and Material categories, most companies have lost sight of a simple overarching fact: everything in a company – including Machine and Material – is driven by the Man factor. Payne and Demming both point out that manpower is the source of all value streams.  So the value streams are ultimately driven by the human energy in the form of work, passion, expertise, inventiveness, entrepreneurial drive, and cohesive teamwork of the company’s manpower.  That manpower is a combination of individual expertise and passion, and company culture.

Time and again, I’ve seen companies unable to identify, hire, retain or develop their real experts. At the same time, upper management too often puts a manipulative spoiler, a “survivor” game-player, in charge of making important technical decisions which they are unqualified for. It’s no wonder that the quality of those decisions is poor. And it’s no wonder that the game-players often embrace unethical “sniping” politics, identifying their threats from a distance, and “taking them out” from a hidden position with long-range shots.  Anyone who is selflessly passionate about their area of expertise, searching to make maximum impact in the company, could find themselves a target… “taken out” before they even realize they’re a target.  In fact, in some company cultures, the greater the expertise and the passion, the more likely they will be targeted for elimination by a game-player.

High-performance management understands many of these aspects of human nature, and works to identify and empower passionate expertise who – rather than holding their knowledge close as a self-preservation tactic – develop other peoples’ skills in order to further advance the success of the company.  High-performance management understands that these people have huge value-added reach and potential in the company’s culture and bottom line – in both “soft” and “hard” categories.  So, they recognize them for the critical assets they are, rather than treating them as expendable costs.

Another part of the disconnect is the lack of understanding of the function of process or manufacturing engineering.  Non-technical managers seem to think that engineers design products, vendors sell machines and tools that workers use to make the products, and technicians and/or maintenance keeps the machines running.  That oversimplification of manufacturing ignores the concepts and roles of both process engineering and continuous improvement.  It doesn’t grasp the fact that just as engineers are required to design a successful product, engineers are also required to design and to continuously improve a successful manufacturing process.  Industrial engineers improve labor efficiency, process engineers improve process (stamping, welding) quality and efficiency, and controls engineers improve machine and automation efficiencies.  The direct result of those invested engineering efforts is to increase profits, productivity, and quality.

That doesn’t mean that input from workers and maintenance isn’t important.  Rather, it means that without the work of process engineers who understand the science and physics that govern the processes, it is nearly impossible for a team to reach profit and quality potential. Workers make the parts (low value, short learning curve).  Engineers design and improve the processes that make the parts, and improve future launches of new parts (high value, long learning curve). Is it incorrect to assume that MBA programs rarely or weakly make those critical profit points?

Want to see a Six Sigma project spin wheels and waste time and money with little to show for it?  The easiest and most certain way to do that is to eliminate the input of the expert process engineer.  Instead, rationalize that a maintenance tech “knows” the process and is therefore the “expert”.  That’s like saying if you can use an Excel spreadsheet, you can be a CFO. That tech is not trained in the physics or sciences involved, and is therefore less qualified as a process expert than an ASE certified mechanic is qualified to design a new engine from the ground up.  He knows what he sees, and some basics about what the machine is supposed to do, but that’s it.  What he knows is far less than what he doesn’t.  So he’ll come up with ideas, but the more complex the process or machine, the less valuable and successful his ideas will be.  “Breakthrough” SS targets?  Forget it.

Case in point: take a Six Sigma welding-process project.  Important, difficult, complex.  And yet, way over 90% of the time (maybe it’s 98%), as soon as you actively involve a degreed Welding Engineer on the team (qualified by virtue of formal science, physics, process and metallurgy training), the “Six Sigma” project melts into a “go-do” project like Frosty the snowman melts into a Florida beach.  The true expert knows how to produce and secure major improvements because he understands not only what IS, but WHY.  He can not only evaluate current process capability, but also analyze upgrade technologies and project likely performance gains.

The real questions are these:  does the process expert (engineer) have enough time/manpower and will he be allowed/enabled to do his job for the best benefit to the company?  The answers to those two questions, and whether the expert will be eliminated as a “cost reduction”, will directly or indirectly drive company profits.  And the answers are all determined by… management.

Rob Walton wrote an excellent piece called “Real Economic Growth Begins with Corporate Redesign“, and his insight is worth thoughtful consideration.

Another very different example is a disaster I recently saw.  A company was going to move a plant from one state to another, as a cost-reduction initiative. But they made the move with a fatal cost-cutting mentality. They dismissed the input of both staff and supplier/vendors who were experienced with successful high-performance plant moves, and instead allowed an untrained, inexperienced, unqualified plant manager (who had never been involved in a plant move) to make nearly all the decisions – simply on the basis of lower costs for the move and his unfounded confidence in pulling it off while still managing both old and new locations.  Among the many “cost-saving” items were decisions to grossly delay or completely ignore the need to hire several key high-skill engineering and technology positions, even though the positions were required in order to meet agreed customer quality standards.

As a result of all this, while the internal executive estimates of the plant-move schedule were being one to two weeks behind, the two major customers had both correctly concluded they were 6 to 10 weeks behind.  If not for the bad economy causing a huge drop in orders, the situation would have been desperate. As it is, the new plant’s future remains shaky, and projected profits and business plans are shot. And would it be any surprise if the customers were secretly making arrangements to pull out most of their business?  All because a cost-cutting mentality overran an expertise-based profitability mentality.

So how do we actively resist “cutting costs” and instead focus on “increasing profits”?

One idea is to focus on hiring high-quality manpower that will actually take the mission statement seriously and work as  team players, bringing both expertise and passion to the table.  With a team like that, it’s much easier to focus on profitable growth and avoid slow-motion failure.  A lofty, valuable goal… but how do you assemble a team like that?

If Manpower is the key to durable excellence, profitability, and innovation, wouldn’t it make sense to “root-cause” the manpower, streamlining the hiring and management process to make it more robust and scientific?  I have seen and used different methods of analyzing and ranking candidates during the interview process.  But they are all limited. So far, the best and most comprehensive approach is the one I saw recently from The Columbus Group.

After more than a decade of development, testing and refinement, their Genuine People Systems software uses the PRIZM to predict and match up people and companies for best compatibility, retention, and performance.  Both to the candidate and to the company, the GPS software provides levels of transparency and accuracy that are unprecedented and patented.  It helps companies to accurately portray where they are trying to go, what the culture is like, and what kind of boss I’d be working for if hired. It also provides coaching that helps me as a candidate to recognize and effectively portray who I really am to the company, and what factors really drive and motivate me.  That helps dramatically minimize the occurrences of “oh no – why did we ever hire this guy?” or “I should have never accepted that job offer”.  In fact, those problems might never happen again.  If that sounds valuable, I suggest checking out their website.

How else can we keep our companies focused on “increasing profits”?  Please post your thoughts, reactions and suggestions.