During a “low-hanging fruit” project
to cut unnecessary costs at Franklin
Bank, teams within the company identified $1.7 million in savings this year.
They didn’t have to look far. For instance,
by changing UPS deliveries from next-day
a.m. to regular next-day, the company
saved $96,000.
“When you are operating in good times,
you lose sight of some of these costs,”
says Craig Johnson, president and CEO,
Franklin Bank, Southfield, Mich. “When
we come out of this economic slump, by
keeping the discipline we established during tough times, we will position the business to grow and expand.”
Before granting funds to any company,
Johnson wants to know what they are
doing to maximize what they’ve already
got. How is the organization improving
efficiencies, and what operating costs
have been trimmed?
Smart Business asked Johnson to discuss ways to find that fruit, why that will
please your banker and how you can keep
employees happy while you embark on a
cost-cutting program.
How can a company start a program to identify cost-cutting opportunities?
Many organizations hire outside consultants to evaluate the business in and out,
perform a cost study and identify areas
where operating efficiency can be gained.
They dig deep into the organization, interviewing workers at all levels and spending
time with the books. Imagine the scene
from the movie ‘Office Space’ when the
change-management consultants meet
with employees in a room to discuss their
job descriptions and what value they add
to the company. By ‘digging deep,’ these
consultants often find ways to cut staff.
They generally charge for their services
by taking a percentage of the cost savings.
You don’t need to go that far to drastically reduce expenses. Start in-house first
and create a low-hanging fruit project at
your organization that involves your
whole team.
How can a low-hanging fruit project involve
the entire organization?
By involving employees in a company
effort to identify exorbitant costs and
improve efficiencies, you can build
morale and empower workers at all levels
to make a difference. There are various
ways to involve employees. You may create teams, perhaps dividing the staff by
business segments you want to analyze or
even by itemized expenses, such as
postage, energy or vendors. Each team is
responsible for identifying low-hanging
fruit in its area — places where operations can be tightened and costs cut.
Employees recommended that we
change office supply providers, which has
saved us $20,000 year-to-date. We regularly announce the progress of the low-hanging fruit project and reward employees for
identifying areas of improvement.
How should the program be presented to
employees?
Before you launch the project, it’s
important to share with employees why the initiative is so critical. Explain what
reducing costs will do for the company’s
bottom line, its competitive edge in the
industry and the future of the organization. And, most relevant to your employees, what will these cost savings mean to
them if they are accomplished? Will you
be able to continue covering health insurance premiums? Offer salary increases?
By explaining to your people why the
effort is critical to maintaining the success
of your organization, employees will be
more apt to take an active role in the
results-driven initiative. And they may
understand why some of the tough cuts
are necessary.
For instance, if you know you must eliminate a position at your company and your
staff will be required to put in extra time
to fulfill that role until your budget allows
for a new hire, reward them by creating a
bonus pool. You may replace a $35,000
salary with a $15,000 pool to be divided
among the employees who are picking up
extra slack. Rewards for being part of the
effort can also include a nice dinner out or
tickets to a show.
What do cost-cutting measures mean to the
bank when a company requests a loan?
Your banker will want to know what
you are doing to extract funds from within your organization first, before
approaching the bank for a loan. Be sure
to document the steps you take for cost
savings and revenue opportunities. Many
times, companies go to a great deal of
trouble to switch vendors and fine-tune a
process in their company to make it more
efficient, but they do not document the
results. Track the numbers. How much
did you save, and how did you do it?
Assign someone in your company to
track profit-and-loss statements against
historical numbers.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield, Mich. Reach him at [email protected] or (248)386-9860.
