Eliminating Waste in Business: Run Lean, Boost Profitability (2014)
Introduction
Many of us have heard the stories of the infamous ways that large businesses waste their money. Typical examples abound, such as Mercedes-Benz buying Chrysler in 1998 for a whopping $20 billion. Adjusted for inflation in today’s dollar that would be $26.6 billion.1 Less than 10 years later, in 2007, Mercedes sold Chrysler Cerberus Capital Management for $7 billion—that’s a 19.6 billion-dollar loss! Then, there are failures like New Coke and the numerous cross-cultural marketing blunders like “Nothing sucks like an Electrolux.” And, of course, there are ginormous examples of waste in government, like the fact that Washington spends $25 billion annually maintaining unused or vacant federal properties.2
Too, we often hear statistics like, out of the 30,000 new products that are introduced into the market each year, 95 percent of them fail,3 and about one in four restaurants closes or changes ownership within their first year of business. Over three years, that number rises to three in five. This equates to about a 60 percent failure rate, which is equivalent to cross-industry averages for every new business.4 These are the prominent business statistics we hear all the time.
Because of examples such as these, there are numerous books and resources available to help business leaders avoid these mistakes that are, unfortunately, all too common. However, this book is not about avoiding huge, disastrous failures. The topics covered in this book certainly address these enormous disasters, but also covers the tiny, day-to-day activities that cost small businesses and large corporations billions every day.
Some of these wastes we never think about: meeting after meeting with no agenda or measurable outcomes; excessive business travel; unnecessary motivators; redundant employees; office space and more office space; storerooms full of extra stock “in case we need it;” marketing money sprayed in all directions in the vain hope it will create customers; paper, paper, and more wasted paper; HR policies that fatten the corporate waistline rather than keeping it trim; software and hardware expenditures for systems that are never used or never used fully; consultants; and companies exercising budgeting practices that result in “more of the same, plus 2 percent.”
More or less, we see the business world as stuck at an important crossroad. On one hand, they keep repeating the same ridiculous practices because it is simply “the way things have always been done.” It’s as if they are stuck in 1950, spending all day in meetings and spending every last dime on marketing. On the other hand, companies dive into new practices, like cloud computing, social media presence, and ERP and CRM systems without a clue how to effectively and efficiently use the tools or without knowing why they are even pursuing them.
Waste, Waste, and More Waste
Take something as simple as paper. In the days before the copy machine, workers had their secretary type one perfect copy of a report. Then, this report was passed around from person to person in the conference room during a meeting. This was a waste of time and money. True, you didn’t have enormous paper and supply costs, but you had the cost of the secretary who did the typing and the cost of all the managers who had to sit there in the meeting individually reading the report.
Then, the copy machine was invented. Now every employee in the meeting could have a copy of a report. We didn’t need the secretaries to type it up, and we could save time by having everyone have their own copy. Now, without even thinking about things, we think we have to make a copy for everyone to hold in their hands and review. Have we changed anything? Have we actually saved any money? It’s doubtful. As we will show in this book, we are spending more time in meetings and more time managing and reading paper, even though we have electronic means to need make meetings and paper practically, if not totally, obsolete.
While the details are covered later in the book, no one probably even realized that they were creating a massive black hole of money waste when the copier came out. The average office worker uses 10,000 sheets of paper a year. This cost is roughly 10–11 percent of the total cost of the paper.5 Some of the other costs of the paper include the copy machine itself, the ink, the paper storage fees, and the trash disposal fees. For a small company of 100 employees, that’s $100,000 in paper costs! For a larger company of 10,000 employees, that’s $10 million dollars!!! From paper!!!
Note The average small business company wastes $100,000 a year in paper costs. The average large company wastes more than $10 million in paper costs a year!!!
Trapped by a Mindset
Even today, with the enormous surges in technology, we still utilize the 1980s thinking. How many times have you printed something that someone e-mailed to you? How many times have you even considered who needs a copy of the document? It seems now, we actually send documents to more people because we can, because it is so easy to send a mass e-mail. Then, everyone who got the e-mail, at a minimum, wastes the time it takes to read it. It’s so easy to set up meetings and invite anyone to the meeting with the click of a mouse. So we do it, without even thinking about the time it wastes.
Just imagine if that company in the paper waste example, of 10,000 employees, purchased an iPad or tablet for every employee so that everyone could save and view all documents electronically. That action would reduce the $10 million in paper costs to $5 million the first year. Then, just to be fair, there would be a few more million in IT costs to implement all the necessary software and get every employee proper trained on the software. So, for the first year, becoming a paperless office might net the company only a small amount of money. But, then, forever, the company has a $10 million dollar surplus, minus any hardware, network, and software upgrade costs.
So, why is every office in America not paperless? Are business leaders seriously that dumb? Of course not.
We have a similar example from our personal lives. For the longest time, just as many business leaders are hung up on the, “I have to buy paper” mindset, we thought we “had” to buy laundry detergent. Yes, that’s right, a couple of years ago, we were shocked when we learned that our family of 6, who does at least one load of laundry per day, didn’t actually need to be spending $20–$30 a month on commercial detergent. We are sure all the executives reading this book are thinking you just have to buy paper, just as we were thinking, “We have to buy laundry detergent.” How do you think people washed clothes before Procter & Gamble? We’ll spare you the details because this is a business book (if you’re interested, Google homemade laundry detergent), but we can remember how mad and happy we were at the same time when we realized that homemade laundry detergents are all natural, irritant free, work better, and about 1/25 the cost of the brand-name detergents. Then there’s vinegar to clean floors at about 1/100 the price of floor cleaners. The marketers (maybe you?) have convinced us that we need all these things.
We have become so trapped in these mindsets that we don’t know how to think any other way. We’ve come so far, with so much technology and innovation, and we do not seem to be using it properly. In our personal and professional lives, we have actually increased our daily costs and made our lives less efficient.
We all are working more hours now than ever before. In fact, almost 40 percent of professionals are expected to work more than 50 hours a week.6 Likewise, as you can see in Figure FM-1, a survey of employed e-mail users finds that 22 percent of employees are expected to respond to work e-mail when they’re not at work, 50 percent check work e-mail on the weekends, 46 percent check work e-mail on sick days, and 34 percent of employees check work e-mail while on vacation.7 These statistics mean that businesses have integrated technologies, but have made no attempt to integrate the technologies in a manner that makes employees more productive.
Figure FM-1. Overworked America. (Source: Pew Internet and American Life Project, “Networked Workers,” http://www.pewinternet.org/∼/media//Files/Reports/2008/PIP_Networked_Workers_FINAL.pdf.pdf, September 2008.)
Note Technology has actually caused us to work more. Few people take the time to integrate technologies with the purpose of making employees more efficient. Fewer people track post-implementation efficiency gains.
A New Way of Thinking
We used the laundry detergent and cleaning products example because most of us can identify with how much we pay for cleaning products. If you own a small personal business, you probably look at every bottle of window cleaner and every staple and think about how to get it cheaper. For you, this book is about a radically new way of thinking. Don’t think, “where can I buy the cheapest window cleaner?” Instead think, “do I need to buy window cleaner at all?” (And no, we’re not suggesting becoming slobs.) For the biggest companies, the example is probably more like the following. You might not think about your cleaning product expense if you pay a maid every week to clean your home. You might be thinking if someone can afford a maid, why do they care? That’s exactly the wrong logic.
Even if you “outsource” your cleaning, there is still a significant difference between Windex ($3 a bottle or $40 for a box of commercial powdered Windex) and pennies for natural cleaners. If the cleaning person saved the $5 a week needed for commercial cleaning fluids, by retirement in 40 years, that savings would amount to $140,288.86! How could anyone turn down that kind of money? That’s just one person making one small change. Multiply that by all the tiny areas of waste on a personal level. Now multiply all those areas of waste by the number of employees.
Just imagine all that waste across thousands of people in a large corporation! That’s when you start seeing $50,000 granite tables, $10,000 office furniture, and Keurig machines in every corner. Managers fail to think about the real reasons purchases are made. Does a Keurig machine increase employee satisfaction and productivity? How many have measured that assumption?
Nearly every corner of most businesses, small and large, harbors this pointless waste—wasted money, time, effort, or all three. This book highlights common ways that businesses across all industries waste money without realizing it. We’re not talking about the equivalent of cutting out gourmet coffee from your personal budget. We hope everyone knows that $50,000 granite tables, $10,000 office furniture, and Keurig machines are wasteful, just like the individual stopping for a $5 coffee every morning. However, if you are still hosting lavish affairs like the former CEO of Tyco, Leonard Dennis Kozlowski, you have to know people are only thinking negative thoughts about you. Instead, we are referring to more minor, more mundane, everyday types of activities that every business does and doesn’t think about.
What You’ll Get Out of This Book
Taking an analytical and practical view, this book challenges universally accepted business practices—many taught in business schools—by pointing out how these practices drive waste, and then shows how to eliminate them and reap the benefits. It challenges you to rethink the way you have always done things. It challenges you to use technology and innovativeness, not because it is the thing to do, but because you want to save time and money. When you chose to implement new processes or technologies, you must thoroughly analyze how to use them to make people and processes more efficient (not less).
As you’ll see, Lean Six Sigma and other methods are helpful in improving operations, inventory management, and more. However, this book goes beyond these concepts and covers such areas as marketing spending, personnel administration, and the many categories that make up what is in most companies a bloated monster: overhead and day-to-day waste. We will tackle some of the obvious and easy-to-get-rid-of organizational fat that, for whatever reason, many managers are blind to.
This is not another Lean book and not another, “look how stupid some business leaders are” book. In short, this book takes a comprehensive view of the broad spectrum of money- and time-wasters and shows you how to get rid of them once and for all. It is practical and provides actual templates for calculating and eliminating waste.
1 Goldman, Leah and Gus Lubin, “The 25 Worst Mistakes In History,” http://www.businessinsider.com/worst-mistakes-in-history-2011-4?op=14/1/2013, April 26, 2011.
2 Office of Senator Tom Coburn (R-OK), “Subcommittee Oversight Efforts Identify $1.1 Trillion in Waste or Questionable Spending,” October 19, 2006, at http://coburn.senate.gov/oversight/?FuseAction=OversightAction.Home&ContentRecord_id=611f1f4c-802a-23ad-475d-223d6490f308.
3 Christensen, Clay, “Clay Christensen’s Milkshake Marketing,” http://hbswk.hbs.edu/item/6496.html?wknews=02142011, February 14, 2011.
4 Miller, Kelly, “The Restaurant Failure Myth,” http://www.businessweek.com/stories/2007-04-16/the-restaurant-failure-mythbusinessweek-business-news-stock-market-and-financial-advice, April 16, 2007.
5 McCorry, K.J., “ The Cost of Managing Paper: A Great Incentive to Go Paperless!” http://www.informit.com/articles/printerfriendly.aspx?p=1393497, September 16, 2009.
6 Williams, Joan C. and Heather Boushey, “The Three Faces of Work-Family Conflict: The Poor, the Professionals, and the Missing Middle,” http://www.americanprogress.org/issues/2010/01/pdf/threefaces.pdf, January 2010.
7 Pew Internet and American Life Project, “Networked Workers,” http://www.pewinternet.org/∼/media//Files/Reports/2008/PIP_Networked_Workers_FINAL.pdf.pdf, September 2008.