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Do our governments know how to really cut costs effectively? - Do you?
17th July 2010
When I first started out in general management and indeed for a number of years afterwards it was in a climate of a decline in Britain's traditional engineering industries and I was often in the difficult position of having to reduce costs dramatically and usually make people redundant. The first time I had to do this I didn't sleep at night and was one of the most difficult things I ever had to do in businesses. Nevertheless it had to be done - for the benefit of all - and those years taught me some powerful lessons.
All around the world now we have governments in the position of simply having to cut costs. They have no choice - their outgoings, particularly in relation to interest payments on debt, are now significantly exceeding their income and they have to correct that.
The lessons that I learned are somewhat stark and brutal but they are these: firstly, if you want to cuts costs significantly you have to cut people - they are by far the biggest cost for most organisations and if you are going to cut people you have got to start at the top.
Rarely do I see this happening. I was working with an accounting practice last year and they asked me to run a one day workshop for their 22 partners. I had a phone call one day asking if they could delay the workshop because they had just made 10% of their people redundant “of course” I said “I assume that means there will only be 20 partners there now?". There was a silence followed by " well no - we just making people redundant at the lower levels".
That is bad management - not only is it bad in terms of the way it's viewed by employees and the psychological effect on the company - with only be lower levels affected, but it's also bad management in terms of cost savings. If you want to make significant cost savings the big costs are at the top - and that's where you should start, difficult as it may be.
My judgement, therefore, on our new coalition government here in the UK - and indeed other governments elsewhere in the world the have to cut their costs - is will they start at the top? Will they be reducing the numbers of Members of Parliament?, Will they be reducing are numbers of Generals, Air Chief Marshalls and Admirals in the military? Will they be reducing the number of administrators running councils and hospitals because that's where the cost savings will really come and it's where the efficiencies can come also.
The other action that needs to be taken, which it seems to me has not happened in areas of public service is to mirror what has happened in business and industry worldwide which is to flatten structures and to have as few as possible levels of management between the very top of the very bottom.
I well remember John Harvey-Jones, who was a business guru in the UK, who had a programme on television where he used to visit companies and organisations and give them advice on how they could improve. Once he was invited to do this for the Royal Navy and spent time on an aircraft carrier. I still remember his total incredulity when he discovered that on that one ship there were 29 levels of management between the top and the bottom!
If you are in that most unwelcome and difficult of positions that you need to cut costs then please start at the very top: reduce the numbers of Directors and Vice Presidents you have first. Yes these are people you know well, and maybe their families too and it will be hard but you simply must do it.
Next cut out complete levels of management - you don't need them .
Having taken the big, difficult decisions have a look next at your overhead spends. Something else I have learnt: you can always cut discretionary overhead spends by 10% - you just have to make your mind up to do it. It really is a lot easier than you may think.
So - if as a business (or government) leader you have to cut costs, exercise good leadership and do it right!
© 2010 Roger Harrop Associates
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