A new budget challenge from the boss: “Drop another 10 percent over last year’s performance. Make it happen.”
This scenario is played out time after time as organizations tighten their belts for the opportunity to fiercely compete yet another year. At least that is one perspective.
The more you reduce costs – the more you do with less – the more you believe is accomplished and the closer you approach maximum efficiency. The drawback of this popular leadership strategy is that the line of acceptance is a moving target with the point of failure centered about the moment of imbalance.
Eventually, the reduce-reduce strategy succumbs to overwhelming pressures. It becomes a void. It stretches the organization beyond the elastic limit and it does so ever so slowly that very few notice.
Anorexia is an unrelenting emotional disorder that causes its victims to view themselves as overweight and forces them to make a conscious decision to limit food intake. The lower the food consumption, the lower the caloric intake, the more the weight loss, and the slimmer you appear. To those that suffer from anorexia, slimmer is “better” and tomorrow is another day for improvement.
The issue with anorexia is that there comes a point where your body loses its ability to function properly. This is the point of inevitable failure. The mind leads the body towards a void. The disorder stretches the victim’s organs beyond their physical limit, and it does so ever so slowly that the person affected does not notice.
Like our bodies, organizations need minimal resources to function properly. Year-over-year reductions compounded with additional performance requirements will cause the organization to rely on calories they do not have to burn.
Leaders who can recognize the early warning signs can prevent their team from diving into an unrecoverable tailspin.
Early warning signs of an anorexic organization can include any one or combination of the following:
- Untimely and numerous early retirements by the most knowledgeable resources.
- Unexpected and voluntary separations from early and mid-career professionals.
- Organizational culture indifference to change.
- Missed commitments.
- Lower quality productivity.
- Higher injury experience.
- Lower customer satisfaction.
- Higher absenteeism.
- Lower standard of excellence.
- Loss of leadership credibility.
- Long working long hours just to keep thing going.
- Organizational undercurrents of frustration.
Excellence towards the point of inevitable failure occurs over time; sometimes so gradually that the leader is unaware of what is happening until his team, his organization, hits the moment where process imbalances takes over.
A watchful eye on the following metrics (trended over five years) can help leadership measure and understand the impact of annual budget reductions as a corporate strategy:
- Employees per million/billion dollars of revenue – If the trend is consistently downward, consider taking a second look at your strategy.
- Total compensated and estimated uncompensated overtime hours per million/billion dollars of revenue – If the trend is consistently upward, this could be an indication of organizational overload.
- Attrition rate of employees (early, mid-career, late career). If the trend is consistently upward, this may be an early warning sign of what is to come.
Anonymously survey your organization and ask this one question: If all things were equal including compensation, benefits and career opportunity in another company, would you still choose us? The collective answer to this question over time will either validate or invalidate your strategy.
Set budgets that promote positive trend corrections every two or three years. Plan for it.
Making things happen is what competitive advantage is all about. Increasing the efficiency of operations is a great way of maximizing results for your customers. Success comes in realizing how much of this “efficiency” is the right amount to preclude organizational excellence from reaching the point of inevitable failure.