A firm that charges staff 50p to make tea has lost its way
Straight-talking, common sense from the front line of management
Q I work for a small firm that was doing well before the pandemic but since then has just kept its head above water.
We’ve all been asked to make small sacrifices to keep costs down – from switching off our computers at the end of the day to keeping expenses down to a minimum, but recently it’s got out of hand, with our bosses even demanding that we pay to boil the kettle.
We’re meant to drop 50p into a little Tupperware box every time we make a cup of tea. I understand small businesses are struggling under soaring bills, but this just seems so petty. Should I protest?
A I saw something similar in the early 1970s. When the Timpson shoe shops started to struggle on a very competitive high street. Tea bags didn’t play a part in our cost-cutting plan (at that time tea bags were hardly known in the UK) but a detailed analysis of office loo paper consumption called for savings of at least 1,500 rolls a year and probably cut costs by less than £250.
Despite all the other measures, including “Save It” stickers by every light switch, lowering the office temperature and cancelling the Financial Times in the directors’ dining room, we failed to stem the fall in profits and had to cut the dividend.
These top-down cost-cutting campaigns usually fail, like other tablets of stone sent down from the boardroom – including mission statements, corporate mindsets and the dumb thought “we just need every shop to make two extra sales every day” – if only business life was so straightforward.
You don’t say enough about your business to identify its real problem, but I’m sure the solution won’t be found by paying to use the kettle. Your bosses need to swap this small-minded economic drive for a fundamental review of the future prospects of the business. Instead of acting like rabbits caught in the headlights they need to stand back and apply common sense.
This savings campaign would be more relevant if your company had been living an extravagant existence, but I suspect you have a relatively economical, even humdrum cost base. To understand how expenses can get out of hand, I thoroughly recommend reading Boo Hoo – the book about boo. com, one of the most dramatic failures of the dot.com bubble in 1999/2000. It’s a gripping story that should be compulsory reading for anyone thinking of investing in a highly valued start-up that is losing a lot of money.
The time to launch a cost-cutting campaign is when it isn’t really needed, while things are going pretty well. Every three years, at Timpson, we carry out an exercise called “Cash for Growth”. In truth, it’s an exercise in cost-cutting disguised as a way to create extra cash for capital investment.
Regular readers of this column may recall my occasional references to Parkinson’s Law, which points out that, left on its own, an organisation will steadily grow by adding more employees and unnecessary costs. Never wait until a profit crisis comes along to prompt an economy drive. Two things trigger our campaign to create cash for growth – cash flow and an analysis of recent invoices.
We concentrate on cash rather than turnover or profit because what matters most is money in the bank. Companies with a higher turnover and higher profit can’t claim to be making money if they also have a higher level of debt. So part of cost analysis should include capital expenditure, stock levels, debtors and creditors. But the low-hanging fruit is found from unnecessary expenditure that has been under your radar. That’s why we check a chunk of recent invoices, which occasionally bring comments such as “What is this all about?”, “I never knew we did this!” or “Who agreed to this?”. Individual invoices tell you so much more than a line in the management accounts.
The cash for growth exercise can reveal some substantial savings, but every so often it is worth having a more fundamental think and asking some very basic questions. “Are our competitors more profitable than we are?” “How has our industry changed over the last five years?” “Is our team full of people who you would rate nine or 10 out of 10?”
The last question is the most important. You can’t make substantial savings without reducing the payroll and, for future success, you need a team of superstars. You will never build a great business with colleagues who rate a six out of 10.
Rather than protesting, why not drop a hint by leaving this article on your manager’s desk? If they don’t get the message and you are still paying to boil the kettle, save them your salary by going to work for someone else.