We often find ourselves chasing cost-cutting initiatives, trying to achieve more with fewer resources while maintaining flat budgets and continually exceeding expectations.
I really believe that there is too much waste in what we do, that there is always room for cost savings, and that we are either spending more than we should or buying more than we need.
But there is a limit to how much we can cut costs, for sure there is always some fat or excess we can trim, but at some point, we get down to the meat or bone, and any further cuts start to impact quality.
This is the balance that we need to strike, we need to get the best cost, not the lowest cost, and we need to get the price to the point where we are getting the best value for money.
In one company I have worked for, let’s call them ‘company x’, people looked to push this to the limit, to the point where it really impacted the quality of work that we did.
Company x made it a policy to hire people, their permanent staff, from the lower quartile, so the bottom 25%, as this kept their staffing costs down.
On the surface this might look like a good idea, it might keep the accountants and controllers happy; but what about their output?
There is often a reason why some people are paid less than others, and I am not talking here about geographical differences or labour arbitrage differences, this is because of their capability, and the quality of their work.
There is a reason why Lionel Messi is paid more money than second division footballers in England and it’s not because he works in Spain and they just pay more in Spain.
No, it’s about his output, his quality and the impact he has on Barcelona’s results.
At company x, whilst we had low staffing costs, coincidently, we also had a problem with our project’s on-time delivery.
It never occurred to the Senior Management that these two were linked. I would sit in meetings where they would boast about low staff costs, and yet be perplexed about late projects and what the cause might be.
When it was suggested that low staff quality might be the issue, I was told that this was absolutely not the case, it was probably more a management issue.
True, it was, but a Senior Management issue.
My mentor’s favourite quote was “don’t be the person who knows the price of everything and the value of nothing”.
He always told me costs are important, but it’s even more important that we get value for money, or that we get the value we need for the lowest price.
If we start to compromise on value, then we are always paying too much.
Poor quality is too expensive even if it only costs us one Euro.
At company x, they never seemed to have enough money to do a project right, but they always seemed to find enough money to do it again.
Company x knew the price of everything and the value of nothing.
Their low costs policy was the direct cause of their own poor performance, which actually drove up costs in the long run.
It’s much cheaper to get things right the first time. But their focus was on cost, not value, and they ended up paying a high price, more than they actually should have.
It was a false economy!
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