Working Smarter : Cut Costs

What Do You Do When There Are Not Enough People to Get the Work Done?

Aaron Stannard — Thu, 13 Nov 2008 16:19:00 GMT

In our previous article, we discussed the unpleasant business of playing “what if?” with your organization and determining how to rearrange your workforce as a result of downsizing. In this entry, we explore how to attempt to maintain a consistent level of pre-downsize output, despite the decreased size of the workforce.

So what do you do when there are simply not enough people to get all of your work done? Your workforce is no longer as large as it once was, but the workload remains unchanged. What do you do?

The last thing you’d want to do is scale back core activities and effectively downsize your entire business. Instead, there are three things that you should do:

Cut “Loser” Projects

Core activities should never cease, but you as a manager should immediately identify a number of “loser” projects to eliminate from your team’s workload. Projects are typically new initiatives that are not considered to be a “core activity” until they have demonstrated that they can create positive returns.

“Loser” projects must be cut, and they fall into one of two camps:

Projects that will never be able to realistically provide a return
And projects that will generate returns but simply cost too much to implement during the current unstable economic climate.

It’s easy to spot projects in the first camp; they’re the byproduct of traditional, vague, ineffective project management techniques.

For example, a project is projected to take one month to complete at a cost of $50,000 dollars and it will produce $10,000 worth of savings per month from that point onward. Sounds great on paper, but it’s been four months and the project has cost $200,000 thus far—and it’s expected to take another two months to complete. So instead of paying for itself in five months, the project will pay for itself in 30 months. But by then, the problem solved by this project will probably be a non-issue, so this project is never going to produce a real return. It’s a loser. Cut it.

The second type of project that needs to be cut is the one that will eventually produce a positive return, but have an upfront cost that is simply too expensive under the new circumstances. If you have a project which will take four members of your eight-person team 12 months to complete and 36 months to pay for itself with new revenue generated, then you really should consider cutting the project—under the circumstances, you don’t have time to wait.

Spread Responsibilities and Cross-Train Remaining Employees

In our example from our recent post, we downsized from this organizational chart:

To this one:

Our marketing communications (MarCom) department lost a mid-level manager, a graphic artist, and a webmaster. We have seven people to complete the work of ten—what do we do?

One approach is to cross-train employees to fulfill multiple roles in your organization. Let’s use an example:

Robert the copywriter does a decent job, but he spends a lot of his time waiting on his manager and the technical writer. Robert has demonstrated some layout and design potential in the past; he could be trained in a reasonably short period of time to pick up some of the graphic design responsibilities that belonged to Basil, who was recently terminated.

Cross-training is simply a method of load-balancing the workload on your remaining employees by having them apply their proficiencies in new areas of responsibility. In particular, you should consider cross-training employees who have large amounts of “wait time” or “dead time” between assignments.

Standardize Best Practices

The final technique for getting by with less people is one that we have harped on constantly throughout the lifespan of this blog: take the best practices for completing core tasks in your operations and make them standard operating procedures for all employees.

Streamlining best practices allows you to increase the productivity of every employee substantially and helps you maintain a steady level of output, despite the decreased size of your workforce.

Even though it may be challenging to maintain a consistent level of output in the wake of a downsizing, it’s far from impossible. Managers simply need to look for opportunities to cut bad projects, rebalance their teams' workloads, determine what the best practices are, and standardize them.

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Playing “What If?” with Your Organization

Aaron Stannard — Wed, 12 Nov 2008 00:41:00 GMT

Here’s a scenario: you’re a manager of a marketing communications department with ten employees, and you’ve just been given the word from upstairs that you need to cut $200,000 out of your payroll by the end of the week. What do you do?

Any manager will tell you that cutting payroll is among the least pleasant duties required of management, but it’s a necessary evil. When any manager is given an order to cut his or her payroll, he or she must consider three major items:

Which team members generate the least return per dollar spent on payroll;
Which members of the organization will fill the roles vacated by terminated employees;
And how the team as a whole will be able to maintain their output, despite the loss of personnel.

We’ve discussed a number of options for doing more with less recently on the blog, but today we want to focus specifically on the first two items: determining who to cut and how to replace them without new hires.

Considering Different “What If?” Scenarios

Consider an organization chart of your team or department as it is currently:

You have ten people in your department, including yourself. You need to eliminate $200,000 worth of payroll without adversely affecting output—how do you do it? Well, before you begin considering individual performance, you first need to list all of the payroll information on your org chart, like this:

Having the exact payroll numbers on the org chart makes it easier for us to see just how far any of our possible personnel changes brings us to our goal of a $200,000 payroll cut. Given that we have all of the information, it’s time for us to play a little “what if?” with our org chart.

First we have to determine who our key employees are – who are the people on my team who are so productive or knowledgeable that we would simply be unable recoup the loss of output if they left?

In this scenario, we have three people who are truly “key employees.” First, there’s David, who has been with the company for many years and understands every aspect of the company’s marketing, inside-and-out—he knows how to communicate that through all of his artwork. Not only does David produce great work, but he produces a lot of it and has received incremental raises over the past three years.

George is another keeper—although he’s new to the team, his contributions make all of the MarCom webpages more interactive and memorable for every potential customer who visits them; the quality of the average user experience would diminish significantly without George’s work. Not only is George proficient at a technical level, but he’s also a self-starter and actively improves the customer experience throughout the website without having to be told to do so. Replacing him would be excruciatingly difficult.

The last person that we’re not going to consider in our payroll cut is Joanne; she is able to convert the production team’s work into web pages more quickly, efficiently and accurately than anyone else. And she is the only person on the team who understands how every detail of the website can affect the user experience. It’s largely due to her ability to anticipate the behavior of potential customers which has made your company’s websites so successful.

Every other position on this flowchart is fair game for elimination.

Scenario 1 – Eliminating the Most Expensive Employees

You have two managers who report to you: Tom and Janice, who are paid $100,000 each and manage four people a piece. They were both promoted to managers a year ago and neither one of them has performed spectacularly. Tom’s team is productive but they don’t consistently produce high-quality marketing materials unless David does most of it, and Tom has been slow to correct the problems.

Janice is another story—she is always on the offensive and is the first person to blame someone else when something goes wrong. She’s disrespectful to Tom and his team and spends more time defending her own team’s errors than she does correcting them. Her transition from development to management has been difficult and it’s clear that she’s not cut out for it.

The rationale here is that under this scenario you only have to cut two employees, so the size of your workforce will not be as small as it would be had you cut three or four lower-level people.

If you eliminated both of these employees, you would meet your goal of cutting $200,000 out of payroll. Here’s what your org chart would look like:

Payroll cut so far: $100,000 (goal: $200,000)

I went ahead and flipped the org chart onto its side (you can do that automatically in SmartDraw) to make it easier to read on this blog, but the important thing to note is how your number of direct reports has increased four-fold since you eliminated Tom and Janice. Instead of having two mid-level managers reporting to you, you now have eight employees who report directly to you. This means that your personal workload is going to increase significantly and all of the employees will receive less supervision overall.

Given the quality control issues that both teams have been having, less management will mean less review of work and probably more errors. Clearly, eliminating just the highest paid positions isn’t a good solution.

Scenario 2 – Eliminating the Poorest Performers

Rather than merely eliminate the two most expensive positions from the payroll and calling it a day, we will consider the performance of every employee and cut those who produce the least amount of value relative to their compensation. We’ve already determined that David, George, and Joanne are well-worth what they are paid and we’ve determined that Janice is a drain on morale and actually hinders the productivity of both teams. Janice’s position will be eliminated.

Given that information, here is what our flowchart will look like:

Payroll cut so far: $100,000 (goal: $200,000)

Your number of direct reports has increased from two to five, but you’ve eliminated a problem employee and saved $100,000 worth of payroll per year. Your personal workload is going to increase somewhat and you’re going to have to spend some more time attending to the day-to-day activities of Janice’s team. You’re confident that you can pick up the slack.

We’re going to keep Tom for now—he’s not a spectacular manager, but he’s been learning as he goes and has shown signs of improvement; so long as Tom keeps learning how to become a better manager, he’ll be increasingly valuable.

Let’s consider your other direct reports. George and Joanne are all-stars and they don’t need to be looked after; Shauna isn’t outstanding but she works well with George and Joanne. Michael, on the other hand, is error-prone and a poor producer; it’s clear, based on the quality and volume of Michael’s work, that he does not care. Your company can do without him.

Joanne has already been tidying up after Michael, so eliminating Michael doesn’t adversely impact your output much. In addition, most of your time spent managing your new reports would probably be spent managing Michael, so eliminating him frees you up somewhat.

Payroll cut so far: $165,000 (goal: $200,000)

In order to make our goal, we only have to eliminate one more employee; everyone else from Janice’s team will remain intact, so we’ll have to look at Tom’s team. We know for certain that we’re keeping David, given his excellence; Robert and Cheryl are both decent producers, even though Cheryl occasionally gets the technical details of our products wrong and Robert’s copy is sometimes off; this leaves Basil.

Basil’s work is high quality, but he is slow to adapt to changes in the marketing plan and has bungled the past few major assignments that have been handed to him. He is a drain on management’s resources and his mistakes, although infrequent, have been costly. David can probably pick up some of Basil’s work and Tom himself is a decent graphic artist, so the two can split Basil’s workload reasonably well.

Let’s see how this would look on our org chart:

Payroll cut so far: $225,000 (goal: $200,000)

Your number of direct reports is down to four instead of five and Tom’s management workload has decreased somewhat. Basil’s loss in productivity will be hard to replace, but Tom and David are going to do their best to maintain the same level of output.

You get the idea—you can use an org chart as a modeling tool to determine how many direct reports are going to fall onto your plate and you can use it to see how eliminating positions will affect your overall payroll numbers. It doesn’t take long to play “what if?” using this technique. And for more complicated management scenarios, like ones where you have to change the roles and positions of employees, this method really helps paint a clearer picture of how your organization will be affected by your personnel changes.

Next time we’ll cover the third bullet: how to get the job done, even if you don’t think you have enough people to do it.

Want to play “what if?” with your own organization? Download a free trial of SmartDraw and make your own org charts!

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Can You Increase Sales in the Face of Recession?

Aaron Stannard — Fri, 31 Oct 2008 14:22:00 GMT

The first instinct of many businesses in the face of recession is to go into the crouch position and start cutting costs immediately. Cutting costs is certainly one strategy to help maintain a healthy bottom line, but shouldn’t you and every other business owner consider an additional second option: trying to maintain or even increase sales?

While it can be difficult and expensive to invent new ways to generate sales leads, you can certainly do a better job closing more of the leads that you already have. And that’s the subject of this article: even in times of uncertainty, you can still increase your revenue to higher levels than it was previously, if you handle your business correctly and improve your existing sales activities in the two following ways:

Optimize Your Sales Team’s Operations

You might have a team of three to five people who try to contact leads and sell quantities of your product. Let’s suppose that John is your star salesperson; he has the highest close rate and has been the top performer year after year. Here’s what he does:

John is a terrific salesperson; if he issues a quote, then he is probably going to make a sale. Your other sales people, Jack and Jill, are not nearly as good as John is. Here’s what they do:

Jack and Jill waste a lot of leads by delivering boilerplate pitches and they waste a lot of their own time by not making sure that they are pitching to qualified leads only. This is why John’s performance is far superior to theirs.

So how many Jacks and Jills do you have on your sales team? How much more money could Jack and Jill earn for your business if you took the time to understand John’s sales process?

Think about it. If Jack and Jill learned John’s sales process they would:

Spend more time pursuing qualified leads only;
Tailor pitches to suit the needs of specific clients and close more leads;
And lastly, Jack and Jill would close leads faster and thus actually pursue and qualify a greater number of leads.

And that’s just the tip of the iceberg when it comes to improving your sales process—you can also use a sales funnel to analyze where leads are being lost most often and retune your marketing efforts there.

Close More Leads by Customizing Sales Pitches

Good sales people know that cold-calling clients and delivering a scripted sales pitch, without accounting for the needs and pains of potential clients, is an ineffective way of conducting business. Moreover, you get better results by tailoring pitches to the needs of individual clients.

Your sales people don’t have many chances to make first impressions, so why not impress your potential new customers by:

Beginning by speaking exactly to the customer’s pain;
Identifying the problems that create the customer’s pain;
And following up with an articulate explanation of how your company and its products or services can solve the customer’s pain.

No two customers’ pains are going to be exactly the same so it requires some due diligence on the part of your sales people to determine what those pains are—but it is well worth the effort. It gets the attention of your potential customers and it speaks directly to their concerns; ultimately, this will help you close more leads.

So the next time you set about designing a PowerPoint presentation for a sales pitch or a prospecting meeting, bear in mind the pains of your potential customers and offer solutions rather than products.

If you’d like to try optimizing your sales team’s process with a flowchart, feel free to download a free trial of SmartDraw.

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Three Ways Our Customers Are Fighting the Recession

Aaron Stannard — Wed, 29 Oct 2008 21:32:00 GMT

The economic climate as of late has become demonstrably unstable and, as a result, many businesses are battening down the hatches and making preparations for the upcoming fiscal year. This means cutting down on operating costs, eliminating projects that don’t have an immediate impact on the bottom line, and implementing other cost-cutting initiatives.

Over the next few weeks, we’re going to be publishing a lot of material which will provide you with some ideas to help you find ways to tighten your belts. Today we’re going to provide you with a preview.

Here are three strategies that we’ve received from customer case studies regarding how they’ve improved their bottom lines in the face of recession:

A Major U.S. Health System Saved $1,000,000 per Month by Optimizing Processes

The more time a patient spends in a hospital, the greater the cost to the hospital. So it is no wonder that one of our customers, a major U.S. non-profit healthcare system, was under the gun to increase its patient throughput. By documenting the existing hospitals’ business processes with flowcharts, our customer was able to identify and correct major inefficiencies throughout the healthcare system’s operations. This netted them a savings of roughly one million dollars per month as a result of increased patient throughput.

A Small Business Saved $20,000 per Year by In-Sourcing Marketing Materials

A small business that specializes in brokering industrial property solutions was able to save approximately $20,000 per year by drawing a large portion of its own marketing materials, namely floor plans and landscapes, using a copy of our software instead of relying on expensive third-party graphic artists to do the work.

A Major Charity Saves 100 Person-Hours per Month by Improving Project Management

A major charitable organization in the U.S. uses SmartDraw routinely to create training materials using flowcharts and mind maps. These types of diagrams are self-explanatory and thus require less explanation and communication with instructors. Most recently, they took advantage of SmartDraw’s project management capabilities to simplify a major IT system migration, saving the organization even more time and money. The charity estimates that its routine use of these visual management and communication mechanisms helps them save roughly 100 person-hours per month.

In the upcoming weeks, we’re going to be publishing an extensive amount of material which will tell you how to recession-proof your business and get the most of your organization during economically turbulent times—so stay tuned!

Discussion: How Are You Cutting Costs?

We’re pleased to share with you some stories of how other SmartDraw customers are saving money in the down economy by cutting costs. But we’d also like to encourage you to share your success stories with us here on the blog by leaving a comment below. How have you been able to cut costs in the face of a possible recession? Have you found any of the techniques that you’ve read about on Working Smarter to be helpful?

Please let us and other readers know!

If you want to try building your own mind maps, project charts, flowcharts, or anything else mentioned in this article then you can download a free trial of SmartDraw.

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