This month’s post was supposed to be about CMMS implementation. But recent events have me stepping up on another soapbox.
It is year end and businesses everywhere are scrambling to meet their budgets. Another round of speeches about belt tightening and cost reduction. While I am all in favor of lowering costs, short term cost reduction initiatives leave a bitter taste in my mouth. Reactionary cost cutting is dangerous and can wipe out years of hard fought gains; continuous improvement through defect elimination is the true path to sustained cost reduction and excellence.
I illustrate my point by telling you a little tale. There once were two neighboring kingdoms. One day the treasurer of the first kingdom came into the throne room and said to the king, “Sire I have just been to the treasury and finished an accounting of our gold reserves. Things are dire indeed: the needs of the people are great and growing, and our gold reserves are severely depleted. We must take immediate action.”
The king summoned his ministers and called his court into session. Pounding his fist on the table, the king declared, “We must cut spending immediately and conserve our gold. Cut the people’s bread rations in half, and cease production of all materials and weaponry not necessary for our immediate survival. We must learn to do more with less. This cost reduction strategy will be the only way to save our kingdom!”
A trusted minister warned, “Sire, the people will rebel and we will weaken ourselves to the point that we will be vulnerable to attack.” “I do not care,” the king roared, “desperate times call for desperate measures; our very survival is at stake!”
The ministers immediately put the king’s decree into action. Weapon production was halted, the stable was closed, and the horses were put out to pasture and left uncared for. Hay rations for the horses were cut in half. The knight school where young men were trained in the art of war was closed, and all of the knight’s squires and understudies were sent home. No new farming tools were manufactured; the people were told to produce the harvest with the tools they already had.
Farming tools fell into a state of disrepair. Hungry, disgruntled farmers without the motivation or tools necessary to support a “best practice” agrarian economy were unable to produce a bountiful harvest. There was little grain to sell beyond that which was needed to feed the population their half rations. Hungry and with no means to provide food for their families, the best farmers were forced to leave the protective walls of the kingdom in search of greener pastures. As the king said, desperate times do cause people to make desperate choices.
The most gifted knights, with no means to feed their families, left the kingdom in search of other places where they may offer their allegiance and their sword. Squires and understudies seeking apprenticeships roamed the countryside in search of other opportunities where they may develop their skills. However, the short term crisis was alleviated by these aggressive actions, and the gold reserves were slightly replenished as spending was drastically cut.
About the same time the treasurer of the second kingdom came into the throne room and said to his king, “Sire I have just been to the treasury and finished an accounting of our gold reserves. Things are dire indeed, the needs of the people are great and growing and our gold reserves are severely depleted. We must take immediate action.”
This king summoned his ministers and called his court into session. He made no declaration. Instead, relying on the wisdom of his ministers, he said, “Times are desperate indeed. The needs of the people are great and growing and our gold reserves are depleted. But people are our greatest asset and they must be taken care of. I am relying on your wisdom to come up with a plan.
"What can we do to invest the little gold we still have available? What investments can we make to strengthen our kingdom? I need ideas and I ask each of you to come up with a plan on how we can best spend our dwindling reserves. I am willing to commit up to half of our remaining gold for an improvement plan. My expectation is that each minister who asks for a share of the gold will return twice the amount given by the end of the year. We need to become more efficient with our resources and make wise investments to grow our kingdom.”
Two ministers came up with plans that guaranteed a two-fold return of gold to the treasury. The Minister of Farming took the gold and purchased additional farming tools, seed, and land. He welcomed the farmers who left the first kingdom with open arms putting them to work in the newly acquired fields. He hired the most productive farmers in all the land and had them teach the farmers the latest agrarian “best practices.” The people from the first kingdom felt welcome and appreciated. Grateful for a means to feed their families, they worked hard to clear and plant the additional land. They were eager for the training they received. Motivated, empowered, properly equipped and trained, they went to work and produced double the harvest. The surplus grain was sold to neighboring kingdoms and the profit was returned to the treasury. The minister kept his promise and the gold invested was returned two-fold.
The Minister of War doubled weapons production. He welcomed the best knights, squires and understudies from the neighboring kingdom with open arms. He fed additional grain to the horses, and doubled the training budget at the knight school. Happy and engaged, well fed, trained, and properly equipped to do their job, the knights rode forth and attacked the first kingdom where apathy, malnutrition, and desertions reigned supreme. The first kingdom, weakened by their king’s short-sided cost reduction strategy, fell to the sword; their gold reserves were carried off by the victors. The Minster of War, flush with the spoils from his conquest, kept his promise returning two-fold the borrowed gold from the treasury.
The moral of the story: When times are tough, there are two strategies. The first is immediate cost reduction. It usually means spending less on the activities which are necessary for a continuous improvement culture to take root and flourish. It is tempting to cut training budgets, eliminate staff positions, stop all proactive work, freeze the hiring of talented young professionals, and curtail the investment necessary to build a “best in class” reliability program.
Cessation of these activities will produce short-term cost reduction, and make the bottom line appear as if you are headed in the right direction. But people will not feel valued or engaged. Your best people will leave the organization in search of other kingdoms where they may offer their allegiance and their sword. Ultimately ,with your top talent headed off to greener pastures, and investments in sustained continuous improvement projects at a halt, the program will collapse and costs will go back up. And your king will once again roar that desperate times call for desperate measures.
I am happy to report that it’s my belief the kingdom where I serve is adopting the latter approach. In the face of an ever-challenging business climate our commitment is to growth, investment, and our people. I believe in the long run it will pay off as people are indeed our greatest asset. I hope all is well in your kingdom during this time of year-end gold accounting. I promise to get back off my soapbox and talk about the importance of the CMMS in the kingdom I call “reality excellence” in my next post. Until then, may your treasury be overflowing with gold.