I quite often find myself having ‘full and frank discussions’ about cost control when I’m training managers and supervisors. High wage and food costs are the curse of this industry at the moment, as they rise relentlessly while selling prices stay stagnant. There are plenty of things you can do to reduce your costs, but most require radical change and an acceptance of ways of doing things that may, at first suggestion, seem almost heretical.
From an educator’s point of view, what I try to do is get the people I train to think outside the square and look at things with an attitude of ‘constructive discontent’ — to move to the understanding that there is always a better way to do things. We all have a tendency to become victims of the ‘this is the way it’s always been done’ syndrome, and often accept the status quo without question. The big advances come when people step aside from blind acceptance and actively welcome change.
Don’t have your key staff on fixed pay
Business owners are generally a bit better at this than salaried workers. Someone who owns a business and is watching their personal income declining is likely to be more flexible than someone getting the same amount of money irrespective of the financial performance of the business they are employed by. This is the best argument I can give you for structuring your business with performance based salary packages with substantial bonuses for achievement. Over the years I have been consulting I have found appropriate performance bonuses tend to create ‘mini business owners’ with much more flexible thinking.
To give you an example, chefs on straight salary packages will often cling tenaciously to the old arcane craft arts in their kitchens and do stuff like bake their own bread and make their own desserts, even though there is no commercially justifiable reason to do these things in-house. They will argue strongly that this is necessary to maintain quality control and the integrity of the product. When challenged on this and made to justify their actions, I find that that the real reason they do this is because they like doing these things, irrespective of the cost, and don’t want to abandon the ‘craft’.
Self interest creates unusual flexibility
Try putting that same chef on a performance based salary package with the opportunity to earn an extra ten or twenty thousand dollars a year (which won’t cost you a bean to pay if you structure the bonuses intelligently), and watch the change in thinking and behaviour. To be fair, there will be some who won’t respond — the true artist couldn’t care less about money — but the majority who have expensive lifestyles to support will dump the ‘sensitive artiste’ act in exchange for enlightened self interest.
I’m just using chefs as a convenient example here, but the same logic applies to managers and supervisors. While they get the same pay week in, week out they don’t have the incentive to change anything. This is a disease that afflicts the corporate world, where there are often large structures of middle management on flat salaries; all hell bent on keeping things the same because they know how to work the existing system. I know this because back in the dim, dark past, I was one of them.
It’s easy for small businesses to innovate
The one advantage small businesses have is that they can innovate and be more flexible than their larger cousins who behave like ponderous ocean liners that are slow to turn around. As a result, there are many small and medium sized businesses out there that are evolving innovative goods and services for this industry in the quest to meet customer needs and stay afloat in a ruthless, competitive environment.
My business is one of them so I can tell you with confidence how I think in order to survive. Like many other business people, I am well aware that each day is a performance appraisal. My clients can drop me anytime they want, with no reason or justification required, and they will do this very quickly and without remorse if they do not perceive strong value for money. You tend to try very hard when you are in this precarious situation, arguably a lot harder than your own employees would if they were trying to do the same things in-house.
Most of the owners of smaller supply businesses are asking themselves the same question over and over in their heads: ‘What can I do cheaper, better or more efficiently than my clients can do in-house and still make a profit?’ They’re looking at everything you do and make and are trying to do it better. A lot of them are very talented at what they do, but possibly not too talented at getting the message out there and their marketing attempts can be quite crude. Our fantastic office cleaner is an example of this — she came to us via a photocopied, amateurish black and white letterbox flyer.
So if you want to reduce your costs, get out of the mindset you currently live in and look around carefully. Don’t just disregard all advertising that comes your way; set-up a system to put it aside and regularly evaluate it for potential. If you don’t grab the innovations and your competitors do, you could easily find yourself a statistic.
‘Innovation is the specific instrument of entrepreneurship. Its is the act that endows resources with a new capacity to create wealth.’ Peter F. Drucker