Abandoning the Obsolete and Unproductive: A Difficult but Necessary Task
Almost every organization of significant size practices cost control. And most CEOs and CFOs proclaim (or silently believe) they are prepared for the sharpest possible economic setback past experience could lead them to expect.
Simply put, the implicit assumption is profit margins in various operating units are sufficiently high and could weather an economic storm if sales dropped, say, 20%, 30%, 40% and perhaps even higher.
Yet all the available evidence indicates when significant downturns suddenly occur, most executives engage in hasty hatchet work or "amputation before diagnosis" to stop the flow of red ink.
This article, in essence, demonstrates why effective cost control requires continuous systematic and purposeful abandonment of the obsolete and the unproductive.
To try to reduce costs in a state of panic is rarely effective.
Worse, when the panic mode prevails, future performance capacity is simultaneously abandoned with result-less activities, projects and businesses because of the failure or inability to distinguish between muscle and fat.
By working systematically on directing efforts and resources toward opportunity and results when things are good, maximizes the productivity of the organization and enables it to survive and thrive even in worst case scenarios.
A fruit tree grows stronger and fuller when it's pruned periodically. In a long out of print book entitled THE FOLKLORE OF MANAGEMENT, Clarence B. Randall, a retired President of Inland Steel, expressed this thought most elegantly:
"The world around, hearty men who make a living by harvesting the fruits of the soil know when and how to use the pruning knife...
...They have no more useful working tool, whether it be a French peasant who gives daily, almost hourly, care to his precious two hectares of sun drenched hillside soil in Burgundy, or the cherry grower of Michigan, or the owner of an apple orchard in the Virginia, he preserves the quality of his product by his skill in removing deadwood...
... The significant thing about his operation, however, is that he works at it all the time. Never does he rush out in terror to lay about him with an ax, slashing indiscriminately right and left...
… He is steady and consistent about the whole process and keeps constantly at it: in the spring following a bumper crop, when he’s sure he has a vintage product, he does the same amount of trimming as after one of those sad years when the hail damage has all but ruined him."
The Message Is Clear
Every enterprise, business or nonbusiness public-service institution, must systematically and constantly abandon the obsolete, the outworn and the unproductive.
Every organization is likely to be loaded down with yesterday's promises. These include activities and programs that no longer contribute; the ventures that looked so enticing when started but now, five years later, are still unproductive.
Let's face it: many organizations (even those that consider themselves extremely successful) are guilty of continuously allocating resources out of habit, tradition and just plain inertia.
Even the mightiest companies (e.g., General Electric, Sears, Toys "R" Us) eventually get into trouble, if it hasn’t worked on concentrating resources on what it does exceptionally well and fails to abandon or re-strategize activities, programs and businesses that make the total business vulnerable, impede its full effectiveness and hold down its performance and profitability.
Said Peter Drucker, "Don’t start out with what should be abandoned; start out by thinking through what should be strengthened and built. Don’t start out by trying to save money; start out by trying to build performance (in mission-critical areas)."
Once this is done, start looking for those activities/projects/businesses which are, to say the least, underperforming.
The obvious next step? Slough them off, outsource them or seriously question their current strategic intent and their strategic marketing activities (e.g., pricing, distribution, strategic market segments, customer and competitive analysis).
If changes are needed and the people in charge of an underperforming business unit fail to make the needed changes, it may be time to change the people.
Take-home for executives: What do you have to abandon to create resources – competent people and monies – for building on identified strengths and to create the new and different (i.e., innovation)?
The best therapy for any organization – from the point of view of performance – is to purge itself of marginal mediocrities.
Every organization needs to know how it performs. The most important thing is to find out what the organization does exceedingly well so it can do more of it. (In future articles/videos we’ll discuss the methodology for making this determination.)
Equally important, every organization must identify what it does not do well so it could stop doing it, and make room for building on strength and converting into operational reality innovation projects/new ventures.
If a candidate for abandonment is a mission-critical support activity, a viable option is to outsource that activity to an outside contractor. If it's not mission-critical, the suggested option is abandonment.
Systematic sloughing off of yesterday frees energies and resources. It makes available the people and funds required for new things and/or to concentrate building on success, strengthening/expanding what does work.
The best rule according to Peter Drucker and many others is to put your efforts into your successes; you’ll will get maximum long-term results.
Indeed, observed Drucker, "When you have strong performance, it’s the very time to ask, ‘Can we set an even higher standard?"
By freeing resources, greater efforts can be concentrated on promoting more frequent usage of the product/service among current customers, creating new customers for the product by expanding the market, and in technology-based organizations, finding new uses for the technology (e.g., home alarm systems technology companies expanded into health monitoring devices for senior citizens using their existing technology).
No organization (businesses, governments, not-for-profits or nations) has infinite resources. This reality seems to have been forgotten or never learned by many people now in influential positions.
Perhaps every organization needs a VP in charge of abandoning things that never worked, the things that have outlived their usefulness and their capacity to contribute, the things that build managerial egos (e.g., multimillion dollar sales revenues but marginal profitability) instead of building superior customer value, long-term growth in strategic market segments and impenetrable/well-fortified market positions.
Take Home Message: Concentration and abandonment are opposite sides of the same coin. Examining habitual processes, and even all strategic business units or associated autonomous companies to determine whether they are still effective, is a worthwhile exercise.
Abandonment should and can lead to concentrating efforts. Concentration is vital, but every organization must choose the right concentrations.
There are structured methodologies for helping executives identify what should be abandoned, how to abandon, and where to concentrate efforts for strong, profitable growth (i.e. new opportunities and/or proven successes that need more attention).
Special Request From Christine Sokolowski – CLN Senior Editorial Director
We would appreciate your feedback on this article. We're planning a series of articles and short videos to expand on many of the themes just discussed. Was it helpful? What can we do to improve?
When I was in grade school we had to do book reports. One of my favorite teachers told us to always ask ourselves two specific questions: "What did the book's author want to tell us?" and "What did I learn from the assigned reading?"
I must say that that very few of the principles and practices a long succession of teachers and professors tried to drill into my head have been as valuable or as useful as the above book report advice.
Hopefully, you'll share with us what you learned from this article. Thanking you in advance, Christine Sokolowski.