There was a young man named Lucky Wiseman because his parents believed he was going to have a life full of luck and that he had a wise looking face at birth! He considered himself too lucky to be careful and too wise to ask for help from others. He always claimed that he knew everything and anything he did not know at any particular moment was due to just forgetting rather than ignorance.
One year there was a very cold winter season and Lucky had very hard nights until he decided to go and buy a blanket. As was usual for him, he felt he knew all about blankets so there was no need to ask anyone about the issue. He got to the shop and was met by a cheerful shop assistant who offered to help. Lucky refused any assistance as he was sure he could read thus needed no help. The assistant walked away leaving him to serve himself. He soon saw a small package labelled “Blanket” and was soon by the paying point. He was somehow amazed by the price but thought that his luck had caused him to get an underpriced blanket. He paid for it and left in a hurry in case the pricing “error” would be picked up.
When he got home, he took out his old blanket and burnt it ready to use the new blanket for the night. The “newy” smell of the blanket made him wish he could do something to cause the night to come earlier. He could not stop imagining the sweet dreams he would have under a new and clean blanket.
He opened the packaging for the blanket and the “newy” smell of the blanket even got stronger. He lay on the bed and spread the blanket from his feet but there was a problem!
The blanket covered his feet but somehow ended below his chest, just above the tummy and when he tried covering himself from the head it ended around his knees. He thought that maybe he had only unwrapped the blanket in half. He tried to check whether he could unwrap it further but alas that was it! He sat down to call upon the “wise” part of his name.
Suddenly he got an idea that made him forget about the cold; which was getting worse as the night went on. He spread the blanket nicely on the bed starting from the bottom of the bed. He got a pair of scissors and cut a portion of the bottom part of the blanket. He took the portion and started sewing it to the top part of the blanket. His wise idea was that by cutting something from the bottom and sewing it to the top part the blanket would get longer, and he would cover himself nicely! It took him long to sew it and when he was done it was almost midnight.
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He was glad, being sure that he finally had a solution that would give him a chance to sleep the remaining hours of the night. He lay on the bed and stretched the blanket starting from the feet and to his dismay the blanket appeared to have become even shorter. From the feet it now only went up as far as the waistline!
He was puzzled but then even had a greater idea! He cut a bigger portion of the bottom part of the blanket feeling very sure that this time round the blanket would fit.
He sewed for another two hours and when he was done it was almost three in the morning and the cold was biting even harder. He once again lay on the bed to cover himself and this time he was shocked that starting from the feet it now went below the waistline. He was very furious and could not sleep the remaining few hours until daylight. He decided to return the blanket to the shop and complain about the mystery of it shrinking during the night.
The story of Lucky Wiseman is not factual, but the experiences and reactions thereto are very familiar in the business world.
Business is about getting more (inflows/income/revenue) from what one spends (costs/expenditure). Even before the Russia-Ukraine conflict and its world-wide ramifications, many entities were facing invidious situations where costs seemed rabid while revenues timidly shied away. The result would be a company incurring perennial and widening losses. The initial response would be to cajole revenue but afterwards the focus goes towards cutting or reducing the costs and this goes by many names including right sizing, costs containment etc.
More often than not these drives have not turned around entities for a number of reasons as often times like what happened to our friend Lucky going on a cost-cutting initiative seems like pruning trouble thereby making it more viral.
Firstly, the cost containment measures sometimes fail because of cutting down the wrong tree as happened to a group of inexperienced newbies to gardening who were not familiar with tomato seedlings. Time came for weeding the garden and to them the hairy looking plants were the weeds while the smooth looking counterparts were supposed to be the tomato plants. In the end they uprooted the tomato plants leaving blackjack seedlings. Sadly, in business the early casualties are training expenses and safety expenses which are often not the most significant in the costs hierarchy. The impact on cost reduction is limited yet the consequences on productivity and revenue are high.
The second possible misstep is to cut the wrong part of the correct tree. Very few trees die if you cut off their leaves as these tend to sprout again and live again. Most trees die if you uproot them and put them in places where they cannot reattach and grow again. An example is labour costs where the root of the costs are paradoxically at the top of the corporate hierarchy.
Cost cutting affects many people by headcount whose contribution to costs is however fringe or nominal. Costs caused at the top are sacrosanct and are never brought up in these initiatives for fear of losing “critical skills” which may have driven the same entity into the ditch. There have been instances where all those employees who would have been laid off are re-hired in different contractual terms which are de-facto permanent in nature thereby rendering the whole exercise a pursuit of the wind.
The third inappropriate reaction is the employment of incorrect instruments. It is not too difficult to diagnose death but many times entities call for many ambulances, which in turn charge for their attendance even if they are not able to change the situation. Consultants are hired to look at a self-explanatory situation which existing players would be refusing to accept.
There have been rare circumstances in which a hired outsider, except for fraud, has come up with an out of the world problem diagnosis and solutions thereto. Most of the findings and solutions are the same details you find in management reports and meeting minutes, which however are not listened to in the normal course of business. This further supports the old adage saying that even a prophet has no honour in his hometown. Most work done by consultants may be simply re-writing the internal documents, which people initially would have shunned for lack of in-depth root-cause analysis. More so, these consultants often come at an exorbitant cost to help drive a cost cutting initiative.
Like Lucky’s “newy” blanket, most cost-cutting solutions are akin to simply rearranging the original problem in a different format without necessarily finding a lasting solution. It has been a common cause that most costs initiated, supported and implemented by those at the top of the corporate hierarchy, are seldom candidates for cost reduction initiatives. This is primarily the reason why most of these cost-cutting exercises end up as simply cutting corners.
The final issue I would like to highlight is once again linked to death and is about delaying the funeral. The way communities and religions handle funerals is different with some laying the departed to rest within the earliest possible time within 24 hours while others like we recently saw, take more than a week in the making. Without condemning or praising one it is fact that after passing away, nothing more benefits the departed while the longer it takes to close, the more costs come to the living. Cost containment efforts become less effective when decisions on the inevitable or unavoidable are delayed whether by design or by “wishful or hopeful” thinking. I once saw a statement somewhere that read, “Hope is not a strategy”.
At the end of it all, when faced with cost pressures, it is good to identify the drivers, which may at times point at you, and then proceed to cut out or arrest the drivers in time.
Chipangura, a fellow member of ICAZ with more than 20 years of post-graduate working experience. He is an accountant by training and a storyteller by birth. — kchipangura@gmail.com