If you only focus on cost cutting, you have embraced the root canal approach to business. How then can you save money, while at the same time move vigorously towards your most important goals? A helpful approach is to make use of the concept of organizational energy: The limited power for any organization to get important things done. The figure below—The MasterMind Approach to Saving Money—describes the relationship between organizational energy and impact on the business of any cost cutting initiative.
Figure: The MasterMind approach to saving money
If we hardly make use of organizational energy and hardly create any impact, we are dealing with casual losses. For example, trying to buy cheaper pencils. It’s not worth the trouble and any activities in this area should immediately be abandoned.
If we use a lot of organizational energy, but don’t achieve big results, we are dealing with blood letting: This is the ancient belief that bleeding yourself will speed up recovery of your sick body. Of course it doesn’t. A well-known business example of this superstitious belief are blanket corporate travel restrictions: You typically save a smallish amount of money, yet it creates enormous hassle and drains massive amounts of organizational energy. Stop it (unless your strategic approach is to shrink to greatness and want to become a small, local player…)
If we achieve big results, while using a low amount of organizational energy, we have entered the realm of business hygiene. This means a continuous focus to discover significant release of monetary resources, while spending little energy. Think of global contracts for expensive resources, like lease cars. It’s an attractive approach and should therefore be a constant focus for business leaders.
Strategic Resource Management
Finally, sometimes we can only achieve big results by spending a huge amount of organizational resources. This is strategic resource management and only makes sense if the big savings serve a big strategic goal. An example is to invest in a new technology to create a better and cheaper product to ensure market dominance in the future.
This leaves us with three questions. In moments when cost cutting is on the table:
- Where does your organization spend most of its resources to save money?
- Where should your organization spend most of its resources to save money?
- What will you do differently to avoid the root canal approach to business and embrace The MasterMind Approach to Saving Money instead?
Photo Credit: iStockPhoto/Milan Markovic