Ask staff to help you survive

2008-03-17 00:00

Last week I made the point that many organisations, both large and small, are finding it difficult to produce the required amount of profit because the economy is fast turning down and with it, demand — particularly consumer spending.

My recommendation is that management should prepare and convene an employee briefing workshop, at which an overview of the economic restraints and the impact of these on the business would be presented to all employees. This presentation should be followed by giving an outline of a number of objectives that will help the business through this difficult time. These should be delivered in a positive sense — as opportunities for the company to ensure its security and future success. The last thing management should do is de-motivate its workforce at a time when they are already feeling the recession in their own pockets. The overall objective of the briefing is to gain commitment from the employees to a gross margin enhancement and cost reduction strategy.

There are only three ways in which to improve gross margin percentage: increase the price, reduce the variable costs (cost of sales), or change the sales mix to one that produces a more favourable gross margin percentage outcome.

The overall plan may call for a seven gross margin percentage point improvement. The workshop should be split into key departments and each asked to come up with their contribution towards gaining the additional seven GM percentage points. This may well be represented by sales contributing two percentage points in reduction of discounts given; the buying department bringing two percentage points to the party by negotiating better buying prices or terms and bringing down the cost of sales; and the factory bringing three percent savings in the hard‚ variable costs of production.

While all this activity is bubbling and boiling away, each department team should bring forward their proposed pledges in terms of fixed cost (overheads) reduction for their departments.

The past tells us that the opposite of a participative-management style has been in place, namely, autocratic dictate: "I have to announce that, due to very difficult economic circumstances, the company has no alternative but to lay off 50 people from our workforce. Those who are affected will be receiving letters in the post over the coming two days."

This is not the way!

There is no doubt that we are in for a rough journey over the months ahead. Turn this negative situation into a positive advantage. Allow the circumstances to motivate a redesign of your business to one that is far more capable of sustaining realistic profit levels, even when the market turns down and, I might add, achieved without the loss of desperately needed jobs. I would really love to hear from those of you who take up this recommendation.

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