CFOs War On Waste ( WoW)

In a competitive world , cut throat competition, innovative solutions offering and margin pressure, CXOs across the Board are under pressure to enhance revenue , GP margin or reduce costs to achieve PBT targets. The initiation of any cost cutting project starts with a backlash and pessimism and many a Managers including even some senior management pass it off as a wasteful exercise, thus defeating the whole objective. It has also been seen that functional Heads don't have full handle and insights on their functional costs as the organisation was on pilot mode during hey days and they had a safe saddle so far. The focus of Organisations is clearly to wage a war on waste to gain a foothold against competition..

A Research by Gartner says over 70%of change projects fail to lack of sustainability or seriousness or non cooperation from employees.

Here are the Top 5 Mantra to execute a successful war on waste.

1. Align all CXO. First and Foremost is that CEO should set a stiff target to run such project in a Group meeting and a consensus and genuine commitment must be taken from all CXOs. Employees should be recognised for sharing any workable ideas and if possible be rewarded on implementation. There should be sincere promise of no witch hunting or victimization of any employee on identification of waste. Such an approach opens up and people will be willing to share, talk and make things happen

2. ?Think Big . This is very important, we have seen how cost cutting exercise either starts with or whimpers down to switching off lights or degrading staff snacks or newspaper and bouquet on desks. Such minuscule savings do not give any long term advantage to organisation and leads it to vagaries of disruptive forces of market player. If truly big fish are to be identified some of the following questions should be posed to identify the dead fish.

3. Set Clear Expectations and Rules: Instead of leaving the ideas to chance and meeting deliberations, the leadership should provide guiding principles to drive the Initiatives. Here are A to Z of some of these ideas based on my little workex in Telecom, Retail and Infra Industries-

A. Are we getting fullest productivity of all on roll and off roll employees. Have their KRA been set in SMART manner. Are the deliverable monitored on regular intervals and necessary support is provided to ensure full exploration of Human Potential.

?B. Is outsourcing strategy right and whether the activity can be insourced with higher productivity and lower GST impact. A right mix of in-sourcing and outsourcing strategy should be adopted based on costs, scalability and dependence scores.

?C. Are marketing spends on branding and tactical campaign yielding desired sales growth. You would have seen how all Indian Telcos who burnt shareholders money are on brink of closure. So much so that one Telco was burning money on save the tiger campaign as NGO and has now finally closed down.

?D. Is spend on technological upgrades and new technology truly needed and whether existing infra is adequate . Sometimes CTOs demand high SLAs from the IT vendors and service providers for which additional costs are loaded. CFOs can work with CTO in defining an acceptable SLA regime instead of a 7 star SLA to manage costs.

?E. Whether any of the Capex planned can be postponed to next year. Remember cash saved is cash earned. It is important to make do with current specs and wait till next higher level and avoid cost on interim advancement.

?F. Whether all services to customers are fully charged as per contract terms . Many a times, the author has seen that while detailed terms and pricing are contained in customer agreement but the same are not configured in Billing system leading to loss of revenue. It is important to perform a regular audit of billing and CRM systems and have the configurations signed off from Chief Revenue Officer who is front face to customer.

?G. Whether proper control and frequency exists for clearing scraps and waste in plants. This will not only clear floor space for better inventory planning but recovery from scrap sale also.

?H. Whether Marketing Managers are giving full discount and rebates to channel partners to achieve their targets but in the process impacting top line. Managers who are giving full discount to customer should be kept on vigilance loop to look for inefficient or any dubious dealings in field.

?I. Whether various line items of Finance cost are fully in control and as per best negotiated rates. These cost like Bank charges, annual fee, BG and LC charges , penal interest can cause a drain on profitability and being CFO domain are sometimes missed from CFO focus.

?F. Whether there is any Idle Capacity in organisation and can the same be shared with any other organisation to gain revenue .

?G. Is there a compromise on quality while cutting cost which will be a long term negative.

?H. In the era of constantly falling communication cost, whether employees are still using old age ISD or Video conferencing system or they can be switched on to modern low cost tools like whatsapp and google talk.

?I. Logistics cost is a also a major concern. Has the organisation set up per unit logistic cost so that dispatches to channel partners, stores and WH including reverse logistics cost are fully optimised.

?J. Is there a well oiled budgetary control system which tracks every cost element at Trial Balance level with ERP integration.

?K. Does Budgeting exercise look at Zero base budgeting norm every year to set up new benchmarks of excellence.

?L. Is there a proper control on damages, penalties, late fee paid to various autorities. No penalty or damages of any sort should be released unless the concerned HOD provides a confirmation that related root causes have been addressed. Whether the erring employees have been issued warning letters should also be checked to avoid repetition.

?M. Whether the cost drivers have been correctly identified . This is where you need expert help to identity the real culprits which cause costs to escalate.

?N. Whether energy costs have been reviewed in detail w.r.t. energy audit. Are there proper process, discipline and control to save energy in terms of timing, lux level, ambient temperature. Whether solar energy and LED lights options have been explored and implemented.

?O. Whether Internal auditors issues on inefficiency have been addressed and closed in time bound manner.

?P. It is worthwhile to adopt Japanese Kaizen Principles for continuous improvement which demands small but regular suggestions to improve productivity, safety, effectiveness while reducing waste. Everybody from CEOs to assembly-line workers should be supposed to send inputs. First made popular after the World War II by Japanese companies like Toyota and Canon, American firms took it up with gusto with other countries too jumping on to the bandwagon.while manufacturing firms globally use kaizen to improve work processes and quality, reduce defects and accidents many others like logistics and supply chain industries too use it.

Q. Some organisations smartly use the tactic of negative working Capital by obtaining credit purchases and cash sale. We as CFO need to explore every single idea when waging war on waste.

R. IT spends aka investments are mandatory in today's digital world. The point is how to monetise such costs into revenue as these lead to improved service offerings. A smart example is Movie theatres who charge convenience fee from customers, thus they achieve digital transformation, change customer habits , reduce infra costs and earn additional revenue. Is your CTO looking at recovering IT costs and has he been given some targets to monetise his investments.

S. In organisation which have large feet on street  sales force, are there proper checks and balances for Ghost employees. Whether productivity and touch point are monitored digitally by Mobile app. Remember daily monitoring and control is always better than post mortem. A GPS based attendance system coupled with biometrics attendance is must based on off site and on site staff.

T. Does the organisation have an enterprise digital strategy with special focus on transformation , market leadership and cost leadership. A well designed digigal strategy will look at all business process, people around same and transition them to digital excellence thereby ensuring sustainability, scalability and profitability.

U. LCGS or low cost Geography sourcing is another strategy adopted by large organisations to minimize input cost. CFOs can review entire sourcing list and discuss line by line items for alternate sourcing . There is a flip side, This is a strenuous job and alternate vendor development may be counter productive too in terms of vendor capability to meet targets and quality.

V. Sourcing strategy re calibration will continue to be a major benefactor in driving down input cost and enhancing profitability. CFOs can be a major change agent in playing against the menace of complacency and " Chalta Hai" mindset . They have to microscopically look at Vendor list, employee vendor relationships, legacy and explore all possible ways to decode the missing link. Reverse Auction is another strategy whereby New Vendor can be developed and existing vendors will be compelled to outbid each other to drive down prices.

W. The Japanese Kanban technique can became an effective tool to support running a production system as a whole, and an excellent way to promote improvement. Problem areas will be highlighted by measuring lead time and cycle time of the full process and process steps.One of the main benefits of kanban is to establish an upper limit to the work in process inventory, avoiding overloading of the manufacturing system. KanBan coupled with JIT and EOQ is deoloyed by most smart organisations as strategic tool to enhance input cost efficiency.

X. Some organisation use Recruiters even for Junior to Middle Management roles as legacy practice. One can look at whether the brand name of company is fully leveraged to attract a talent pool from its Web and Social media sites and in the process save cost and tap a larger spectrum of candidates.

Y. Travel costs is perhaps which is most dear to Corporate Executives and very difficult to control. In today's digitally connected, this cost can definitely be looked at. Travel should be essential where Human touch is needed where a video conference wont work. Something which cant be resolved over phone call. Also encourage executives to BYOT that is Book Your Own Travel as the Hotel rates are much lower at Hotel sites instead of pre negotiated rates. Just ensure that executives share organisation GST details and get proper bills for input credit.

Z. Last but not the least , it is worthwhile to revisit rejected cost-saving ideas by looking back through the past three budget cycles to discover where some departments proposed productivity-enhancing suggestions that required small investments. They may have been rejected because of constraints or other priorities (this often happens, for example, when initiatives require systems programming and IT’s resources are tied up elsewhere). Now is the time to repropose those ideas.

The above A to Z ideas are just tip of the iceberg and based on the experience of Author and merely summaries of the some of the initiatives. In order to make significant and sustainable cost improvements, substantial change must take place. Don't waste time on cutting down Tea, Biscuit, Newspaper, office lights, those are average ideas which comes even without intellect and deep business insight. One has to look at Big Bang Idea, Hidden inefficiencies.

With an Open mind, many such ideas will start flowing. The point is waste is a much larger subject as against common understanding.

3. ?Industry Benchmarking on Cost. Every Initiative needs a direction and benchmark instead of just lofty pep talk. Every organisation should set standards of costs in line with best in Industry norms. This is not to say to adopt the best norm but to further beat them. Obviously this is not a simple excel exercise but requires calibration of all critical process and root out non value add activities to achieve the best. Once again a point of caution here, instead of depending on external consultant solely, the CXOs should be tasked to collaborate with consultants and find solution. It will not be a wrong idea to send firm signals and take stern action on fence sitting recalcitrant employees to send a firm signal that the Board means business

5. ?Set up PMO. To ensure that the project achieves best results, there is a need to form a cross functional PMO reporting directly to Mismanagement with daily reporting of progress and weekly review of actions. The CEO as sponsor of PMO should either empower PMO to take decisions or provide quick decisions to implement cost saving initiative. Once the project is over the PMO members can be reinstated in their original role with necessary recognition, reward and promotion.

The above 5 guidelines are very critical in running a successful war on waste. It requires a collaborative and innovative approach to look at costs from a new prism of efficiency and productivity.

Some key learnings in adopting a Six Sigma approach in Waste reduction are as follows:

 ￡ A rigorous base line is important to  define the improved state of the process

￡ Never underestimate the power of Pilots for an effective implementation of solutions

￡ It is important to build a critical mass of Team Members who will  lead the change in the organization

 ￡ An effective and consistent communication plan is the key for embedded change

￡ Behind every good product there is a good process

Major savings can never be achieved by whittling away piecemeal at what seem on the face of it, If you as CFO want to drive sustainable cost reductions, your will need to view the big picture from a new angle or two, and be prepared to step outside of the comfort zone to which it will have become accustomed.

Once the culture of cost consciousness and Revenue optimisation is set in, the organisation can sustain competitive disruptive forces. 

I look forward to receive your valuable comments to enrich this Idea.