When officers or managers in your organization have dozens (sometime hundreds) of full-time employees working for them, what
incentive do they have for suggesting that their empire be cut back or even eliminated? Far better to retain the power and
control that comes with supervising a large number of employees. In most organizations, large departments not only mean greater
prestige and more authority, but larger salaries and bonuses as well.
On the other hand, companies that successfully implement cost-control mechanisms on a regular basis provide incentives to
reduce costs in the following ways:
Some organizations refer to it as "pruning." Managers must continually prune costs, trimming expenses on an ongoing basis
wherever opportunities can be found.
- Incorporating cost-reduction issues into regular management meetings to encourage discussion of opportunities
- Implementing mechanisms to monitor cost-reduction and cost-control activities
- Rewarding employees for controlling and reducing expenses
- Developing chargeback systems to ensure that managers recognize the cost of corporate services
By implementing such ongoing "pruning" mechanisms -- and by communicating and publicizing them widely throughout the organization
-- your company will take important steps to let employees, stockholders, and customers know that cost control is an ongoing
process and not simply a one-time effort.
Your company shouldn't be run by dead presidents.
In the operations department of a large Midwestern company, two employees devoted themselves almost full time to preparing
and distributing what appeared to be an unnecessary monthly report. The employees who prepared the report insisted that the
president of the company wanted the report to be prepared and sent out.
However, when we asked the president about the report, he pointed to a fresh copy of the most recent edition sitting at the
top of his trash can. "I never look at that thing," he grunted.
Naturally, we were eager to return to the operating department to find out why they thought the report was so important to
the company's president. One of the employee's confidently reached into a dusty set of old files, pulled out a memo, and
showed it to us. "Here's your proof," he exclaimed triumphantly. And sure enough, the memo emphasized the importance of
the report, instructed that it be prepared monthly and widely distributed -- and was signed by the president of the company.
Unfortunately, the memo was dated 1969! And the president who had signed it had long since retired and passed on.
Let's face it: As a general rule, dead presidents should not be running your company. Finding out who your employees work
for is a critical -- and often, surprisingly challenging -- component of any successful cost-reduction effort.
Corporate services are like campaign pamphlets: Giving them away is relatively easy, but selling them is nearly
Many companies have developed "chargeback systems" for administrative services. Under such a system, for example, the Information
Systems department has no budget. Instead, each user department is charged, in its own budget, for information systems services
performed for that department.
At one company, the cost of janitorial and custodial services were charged back to each department at the company. Appalled
at the ever-increasing charge for such services that appeared on their budgets, the company managers looked at contracting
out the custodial services. After they found a cleaning service that would do the work for substantially less, the managers
approached senior executives who agreed to contract out the work, which resulted in significant cost savings.
Some of the corporate services that can be subject to a chargeback system include:
- Legal services, including litigation support as well as routine review of legal documents
- Accounting and financial services, such as economic analysis and projections for specific projects or tax accounting
for selected departments or units
- Building and custodial services, including building maintenance as well as janitorial services
- Information systems, including development of new systems as well as system maintenance and support
- Engineering, particularly engineering related to a specific project or function
- Construction and maintenance, particularly where construction and maintenance are related to specific projects
within the organization
This shouldn't be considered as an exclusive list, of course. Virtually everything that the organization does for itself
can be charged back.