Lateral Views: Value For Money…Is it value for you?

I met Money the other day and told her, “Hey, you are just a piece of paper!” Money smiled and said, “Of course, I am. But I have yet to see the face of a dustbin”…Says a SMS forward. It might not be the only motive, but earning money is one of the most important [...]

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Lateral View: Cost Cutting is more then a mere cutting of cost

Today, cost cutting or cost rationalization has become a part of almost all corporate strategy. Fundamentally a reduction in cost increases bottom-line, hence it is desirable for any corporate. After all a corporate exist to make profits and there by appreciates shareholder’s value.

However I’m not sure how many of such cost cutting measure or initiatives do more good then harm to the organization?

Are you Penny wise Pound foolish?

Cost cutting is done to boost bottom-line, hence it needs a holistic view rather then just a change in cost variable. To give a clearer picture lets put a simple equation:

Top Line (T) – Cost (C) = Bottom Line (B) “or” T-C=B

In the equation, T is the positive variable (gives positive to B) and C (gives negative to B) is the negative variable. Fundamentally, C can never give positive addition to B because there can never be something called NGATIVE COST and the same way there can never be NEGATIVE TOPLINE. Hence at any point in time, for B to have positive figures there has to be some T which is bigger then C, meaning even if C is zero if there is no T your B doesn’t have any value.

What is Cost or C? It is the input for producing T. Hence any disturbance in C impact T.

I may be wrong, but what I think I observed in many cost cutting instances is that most often people goes with the assumption that a reduction in C directly increase B to that magnitude. But what they forget is that while reduction in C increases B but sadly it also disturbs T, and most of the time in an inverse proportionality. There can be four situations when C is reduced:

T remains constant
The reduction in T is lesser then the reduction in C
The reduction in T is the same as the reduction in C
The reduction in T is more then the reduction in C
It doesn’t need an IQ to tell that Option 3 and 4 is a cropper. Option 2 depends on the corporate strategy for that particular time, if you are looking for a market share then you might not want anything that reduces T. Option 1 is the ideal outcome, a result which is wanted at any point in time.

Therefore whenever any initiative for reduction in C is to be executed, we should look at the impact it had on all the variables. We should not assume that T will remain the same if C is changed.

Now, let’s look at few of the common cost cutting initiatives of different organizations:

Shifting office premises to lesser cost locations.
Organization that had undertaken this route might declare that they have achieved significant reduction in their rental cost, but at what cost?

Is there any drop in employee productivity – Impact on T?
Are employees as committed as they were – Impact on T?
What is the employee churn because of which new employees needs to be recruited and trained – Though C might be reduced but this will add an extra C1?
My gut is that unless it’s a consensus shifting, the impact of the above questions could be higher then the cost reduction achieved.

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The Resolve To Say No Vs The Etiquette Of Submission

I was wondering what could be the apt name for an article which draws heavily from Milgram’s experiment on the conflict between authority and personal conscience. Stanley Milgram called it the’ Perils of Obedience’ Lets us set the context for the article first. Karl Adolf Eichmann, sometimes referred to as “the architect of the Holocaust”, [...]

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Lateral Views: Corporate Herds!!!

According to Wiki…The term herd mentality is derived from the word “herd,” meaning group of animals, and “mentality,” implying a certain frame of mind. However the most succinct definition would be: how large numbers of people act in the same ways at the same times. Herd behavior describes how individuals in a group can act [...]

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