How to lower Costs without losing Value

I can see why some executives think that the domestic and international scenario are not the most suitable currently for investments in methodologies that are not instant-gratification generators. There is a lot of pressure on management to deliver outstanding results while keeping costs down. The only problem is that if they continue with the current management plan, then reductions of valuable personnel with massive layoffs and other drastic measures will need to be made and thus furthering the loss of Value of the company.

Among many other things, massive layoffs and other drastic measures respond to a panic trigger, which can vary depending of the organization, market and/or industry. It makes no sense to think that the layoff of hundred/thousand employees could mean the salvation of the company. A healthy work force is of strategic importance to guarantee the sustenance of the organization for management to wrongly assume that massive layovers won’t represent irreplaceable losses and generate a sense of mistrust from the employees towards them.

The real crisis is in the destruction of Value that unfounded radical measures and layoffs generate. On the long term the organization will take many years to recover the lost Value, if they recover at all, concluding that it was not a wise decision.

It’s not completely management’s fault, they just don’t have the right information at the right time. This is because we are still using general accounting methodologies to deliver management accounting reports and thus missing most of the picture.

Nevertheless, there are preventive methodologies that offer another alternative to reduce costs across the organization without losing Value and keeping the trained, qualified and valuable employees that can make the company great.

New ways of doing business are very common these days and one of them is to take care of the people that make what your company is. The human asset is no longer quantifiable as a machine is, people are living organisms with self-awareness that can create anything given the right circumstances or environment. The role of the manager or team leader is to make sure everyone fits perfectly in their environment so they can avoid stress and create jointly with others in the same situation, amazing ways to resolve problems and make the team/department/company work better than ever before.

It takes time, money and a lot of effort to bring someone up to become a functional member of the company. Education, remuneration and sense of importance are crucial to retain someone. The dedicated time-expectancy of an employee should not be less than 10 years. Then the education, training, money and time required to train them would pay off allowing the individual to choose if they prefer to move somewhere else or continue in the organization.

Then, measurement of operations becomes critical for management to oversee such qualified workforce to make sure they are in their right environment. But more important, measurement of resources and overhead costs get a new kind of accounting and process information that is much more accurate than the classic P&L, balance sheet or budget.

All these different types of measurements can be done with all sorts of software. The methodology on the other hand, would need to involve the whole company in one solution. Understanding then, that each part is interdependent on all other parts.

This approach or methodology is called Activity-Based Management or Activity-Based Costing.

The right data at the right time. That is what ABM/ABC promises. As such, it is clear that such methodology is not to replace General Accounting, but to attend to the data needs that management has. It is an analysis methodology for decision-making and continuous improvement.

Cost reduction opportunities, without the need of losing Value by laying off potential valuable employees, can be drawn from analyzing the data ABM/ABC provides. Just by eliminating activities that don’t add Value or improving the ones that are not being efficient, a company can revert their deficit situation and grow again. This is if we don’t count the profitability analysis and simulations that can be done with such solution to further improve the decision-making process.

For a sustained Value growth that will make all stakeholders happy, is important there is buying from the whole company. How we bring everyone (or most) on board is not by frightening them by saying that they will have to measure their performance -that could lead them to think their jobs will be on the line, which generates stress, and in turn generates a deterioration of performance. The employees need to be told the truth and the intent of the project so they can take it as their own for the benefit of the company, which in turn, can benefit them personally (i.e. Bonuses tied to growth results).

Organizations that have successfully implemented ABManagement / ABCosting are:

• Better prepared to face the changes all markets eventually suffer.
• Ahead of the competition by focusing on what is profitable and not so much complexity.
• Experiencing increased Value due to reducing non-valuable activities and increasing Value-generating activities.
• Enjoying a creative and proud workforce due to previsible HR policies that are based on performance and innovation objectives.
• Increasing their market share by turning competitors’ customers away from them.

For more information on how Activity-Based Management / ABCosting can help your business achieve new levels of profitability without losing Value, please CONTACT US and we will be happy to answer all your questions.