A $1 solution

A $1 solution.

Yeah right.

I can already hear your criticism. Probably just a marketing ploy to hook my devout readers.

Well, that's not the case.

I write this blog post because this $1 idea came to me spontaneously while I was delivering a conference...

Just like that!

It developed as I was talking and explaining. It came fast. Very rapidly. In the blink of an eye, it just made sense.

I therefore took this opportunity to share the insight that came with it in a blog post.

There is only ONE question to ask yourself at the end of this blog post:

Do you trust your employee/colleagues/subordinates?

Do you trust them enough to entrust them with $1, no questions asked, no matter what.

A warning though: the answer is way more complex than you think. And your answer might change as you read the following lines.

But let’s first start with a few case studies

Case #1:

Imagine the following scene:

One of your colleagues/collaborators/employees must fulfill some material need for your organization. A book, some envelopes, a box of pens, a tailless rodent for a computer etc.

Not some usual stationary, however. This is not very expensive but it is not in the pre-approved “list”.

For example, the usual mouse that is supplied with the company computer causes pain to your employee's right wrist. Your colleague has had some carpal tunnel problems in the past and would rather avoid a recurring condition. Her doctor suggested an adapted computer set-up. She decides to order the new ergonomically designed mouse and a wrist rest online, free shipping and shipped the following day.

At the end of the month (or week), her boss (or you) will receive her expense report as well and other expenses done in the period. Refund is automatically done and will appear on her next paycheck.

Case #2:

Imagine the following variation of the scene

One of your colleagues/collaborators/employees must fulfill some material need for your organization. A book, some envelopes,a box of pens, a tailless rodent for a computer, etc.

Not some usual stationary, however. For example, the usual mouse that is supplied with the company computer causes pain to your employee's right wrist. Your colleague has had some carpal tunnel problems in the past and would rather avoid a recurring condition. Her doctor suggested an adapted computer set-up. This is not very expensive but requires a special kind of approval as it is not in the pre-approved “list”.

She browses a few web sites and decides to choose the new ergonomically designed mouse and a wrist rest.

She then fill the required authorization forms and send it to her boss along with an explanation for her purchase. Her boss read the request and sends it back for further explanations to make sure the request is really required. He then approves after a few mild arguments and discussions and send the request to initiate a search by the purchasing department with the company’s usual and authorized suppliers.The purchasing department decide to buy a standard ergonomically designed mouse and wrist rest. The items arrive 1-2 weeks later.

The items were purchased without consulting the original requestor and the latter must return the whole order as it is not suitable and increases her pain. A new request is initiated, more specific and this time the items following the specialist’s recommendations…. as the pain not only did not recede but in fact increased as the delay between the initial request and the final delivery was simply ….prolonged and prompted a new visit to the doctor’s office

Ultimately, the employee had to undergo carpal tunnel surgery and could not use the new mouse for 3 months.

Ok, ok.. I tend to amplify a little bit the bad part and the consequences of the evil purchasing department. Forget the last bit…. she received her mouse and live happily ever after.

Question:

Which of these 2 situation is similar to YOUR purchasing system control?

Oh well, I can just hear you trying to mitigate case #2….our system is not as bad as #2.

I am certain of it.

But, why do I have the painful sensation that few of you, dear readers, use a system that resembles the situation #1?

Ah, you might say, but the #1 position is slightly exaggerated?

Utopia?

Anarchy?

Bottomless spending and corporate bankruptcy?

The risk of derailment is huge!!!

Is it?

Really?

To illustrate my point I will use rough estimates. Very conservative estimates.

I invite you, however, to repeat the following calculation using your actual data.

Considering the potential for wasteful spending, how much does your current expenditure control processes actually cost?

Let’s assume a minimum wage (I cannot make a more conservative estimate!) of $10/h.

Let’s now estimate the cost of the purchase, that is to say the cost of the entire transaction and not the cost of the item purchased. Whatever the method used to buy it, the item costs relatively the same (unless your purchasing department is very aggressive with your suppliers and get a 10% discount harassing ... and renegotiating each year until that suppliers do not accept these approaches and decide not to have you as a client anymore).

SO:

Minimum wage of $10/hour.

Case #1:

Search on the web: 12 minutes (round estimate only, 6 minutes = 0,1 hour) or 0.2h: $2

Online purchase with credit card: 0.1h (I exaggerate here to respect the rounding off assumptions made earlier as it should be 1 minute): $1

Compiling weekly/monthly shopping expenses on Excel: 5 minutes or 0.1h: $1

Send the Excel file to the finance department for reimbursement: 1 minute ... ok, 0.1h: $1

Once a month: also send the statement of credit card certifying the expenditure: 0.1h: $1

Total: 2 + 1 + 1 + 1 + 1 = $6.

Still, a $ 6 transaction for a ergonomically designed mouse and a wrist rest $75.

OR less than 10% of the item cost.

Case #2:

Initial research by the pain-afflicted employee on the web: 12 minutes (we round numbers!) or 0.2H: $2

About 20 minutes or 0.3h to build the argument, compare prices, present a brief report on Excel for her boss: $3

5 minutes (rounding up to 0.1h) walk from the employee to the office of his boss or approving authority for the expenditure: $1

6 (this is very effective organization !!!) minutes of discussion between boss ($50/h) and employee: $5 + $1

Approval after some arguments and return of the corrected form to initiate a search process by the purchasing department.

Rounding off to 20 minutes for 3 people ($10/hour + $20/hour + $50/hour): $24

The purchasing department decides to buy an ergonomic mouse and a wrist rest, the typical and usual standard models for this kind of situation. The initial and very specific items requested were not on the normal list of items offered by the lowest-priced supplier

Purchasing department search time ($20/h): 10 minutes ... 0.2H or $4

The purchasing department performs the ordering: 5 minutes or transaction 0.1h or $2

The material arrives 1-2 weeks later.

During the waiting period the employee works more slowly and take longer because of the pain... difficult to assess the loss of productivity…therefore, let’s assume no loss. Unrealistic but hey…this IS a simulation!

The items arrive but since it was purchased without consulting the person who requested it and is not suitable. A new request is initiated, more specific this time.

Additional consultation time with the purchasing department employee: 20 minutes or 0.3h ($20/hour + $10/hour): $9

Checking the form and re-approval: 0.1h boss: $5

Order: Transaction 5 minutes or 0.1h or $2

Checking expenditure by the auditor of finance who does not understand why we ordered twice, asked for a refund, etc., etc .: 0.4H of Finance colleague at $25/h: $10

Loss of productivity due to flustered finance employee and original requester: unknown but real.

Total: 2 + 3 + 1 + 5 + 1 + 24 + 4 + 2 + 9 + 5 + 2 + 10 = $68.

A $68 transaction for a $75 equipment.

Skeptical?

Please, do not believe me ... Download our spreadsheet and do the math.

And double it.

Yeah, it's called the cost of lost opportunity ... Lost time to do anything other than that for which these people are paid ... Because they do not work during all these hesitations, discussions and arguments. And we do not even want account the impact of the disruption on their productivity when they are back at work. Oh, but this does wonders for the gossip mill.

This illustration is a visual example. I have already written about the cost of a decision and inaction elsewhere in this blog.

In more serious terms, I should talk about ROI, Return on investment.

What would be the ROI on a riskier system such as case #1?

In fact, there would be no investment since the expenses will be completed anyway.

I heard a speaker recently who said that if the "i" is small enough, there is no ROI.

If we play the game, the "i" is $1.

A $1 solution therefore.

I propose a solution ... $1 per day per employee.

Jean-Fran?ois Zobrist mentions this in his book 'The beautiful story of FAVI'.

Imagine that you give everyone in your organization a petty cash of $365, $1 per day.

Each employee can do whatever he wants with that money. Purchasing tools, mouse (the thing, not the beast ... although it might make a good joke!), Pencil, diary, sweets ...

Spending would pre-approved once a year with the petty cash check.

No question asked.

Employee's responsibilities would be simple and limited :

1. Every employee’s expenses should be visible through a monthly expenses for all to see

2. The transaction receipts must be sent to the finance department for verification every quarter (must comply with the laws anyway!)

3. For purchases greater than the total personal petty cash allotted, an employee must

3.1 Consult peers to validate the purchase

3.2 Convince his peers to combine THEIR petty cash amount for the common good

The boss's responsibilities are as simple

1. Explain the organization’s vision

2. Demonstrate transparency by showing the "numbers" of the organization

3. No question asked upon seeing the expenses… trust is the key.

4. Meet an employee after purchase (remember, purchases are posted monthly!) to better understand the purchase in cases of seemingly ridiculous expenses (I swear that $100 of raspberries candy will create some emotion but might not be as unjustified as it seems!)

5. Make the recommended calculation mentioned above and show the savings implicit trust will generate

6. Reiterate confidence by repeating the experience next year

Potential for fraud?

Yes, but low, very low.

Potential ridiculous spending?

Yes ... the organization’s vision and mission must be clarified and re-clarified frequently.

and anyway, raspberry candies are always sooooo good!

Potential to make frivolous purchases?

Yes, once per employee ... but an adult learns the difference between a hug and a slap ... At two years of age in general. Buying $100 of candy might be accepted once but the ensuing discussion will prevent repetition.

Potential to increase productivity and profitability?

HUGE!!!

Potential to improve morale and co-operation?

HUGE!!!

Risk of poor financial management?

Almost none.

After all, ALL these people are adults, pay credit cards and rent, most have a family and manage situations a lot more complex than a petty cash of $365/year.

I just loooove these concepts of self-regulation.

And I deeply believe that our colleagues’ potential is shamefully under-exploited.

Management was once put in place to reduce the cost of a transaction. Our organization have inflated immeasurably since the original principles of management have been implemented and they must be redefined in our era of information and knowledge workers.

Unfortunately, this is contrary to the current trends to add levels of middle management that would implement self-perpetuating processes to guarantee their job security while reducing significantly the global efficiency of the organization.

Trust , however, has always been a good deal.

The $1 solution is perfectly in line with this!

Trust that each employee will be able to manage his daily routine AND his $1

Zobrist and FAVI demonstrated that it IS possible. Most employee would not even spend the totality of his allotted petty cash and in some case would not even ask for a renewal of it after a few years. Productivity gains were durable and long-lasting, however.

Trust has always been a good deal.

I propose this $1 solution to test YOUR trust in your employee.

As only a beginning towards something much, much bigger.

$1

Per day

Every day.

How much will your organization save in facilitated processes, increased trust and productivity, loyalty, innovation and more?

$1

Per day

Every day.

I asked you a question at the beginning , a question you were supposed to answer honestly.

Here it is again:

Do you trust your employees/colleagues/subordinates ?

Do you trust them enough to entrust them with 1$, no question asked no matter what?

Do you?