Wednesday, December 8, 2010

Business Frugality Light and Dark

The Light Side: When the tech bubble burst, the sluggish economy brought about belt-tightening from the inside. Sales were happening as they should, so income wasn’t the issue—outgo was. Here’s how some companies dealt with the leaks in their dam:

To save money for his employer 1-800-GOT-JUNK, franchise-support manager Sentwali Lewis eats protein bars instead of lunch, woos clients over burgers and fries and has even stayed in a client's spare bedroom to avoid springing for a hotel room. His employer, a junk removal company based in Vancouver, Canada, awards cash bonuses based on how much money employees save on the road.

Lloyd Taylor, CIO of Cargill International, knows his company is on the line. Out of $49 billion in revenues, they only cleared 7/10 of 1% in profit margins for the year 2000--less than a penny per dollar. He’s become the master of doing more with less.

Employees at Southern Crescent Personnel, Inc. suggested re-using the backs of faxes for scrap paper, ditching the $5 personalized coffee mugs, turning off the air conditioner at night, and looking into better phone and internet rates.

Travis Granville, CEO of Atomic Fusion, Inc. uses spam fax offers for cheaper office supplies that include coupons. His company also turns the thermostat back at night, turns off lights and computers at the work day end, and shops at Costco for needs not covered in the spam faxes. They also make their own marketing materials, and recommend this to their clients.

Van Xiong, purchasing agent for PDSHeart, loves shopping and negotiating. She loves searching the internet, getting sale prices, and using the catalog coupon to boot. When she finds a sweet deal, she gets it in writing, then negotiates with existing company vendors to match or beat that price. If they don’t, she goes elsewhere.

Tips from other firms include buying used equipment and supplies when available, saying no to software upgrades, letting vendors bear the cost of development and customization of software programs, and blocking the 411 capability on the business phone system, using standardized computers/software systems/applications, billing the client for IT projects that relate to a customer’s contract, and hanging a shingle by making a department into a wholly-owned subsidiary.

The Dark Side: Sometimes well-intentioned cost-cutting measures can go awry. When they impact a customer’s impression of or experience with your business, they tend to have the opposite effect in the form of lost revenues through lost clientele.

Some examples include:

Giving away undersized free items to loyal customers, as the case of the Starbuck’s birthday coupons. This went a long way toward knocking the warm fuzzies off some customers, making them re-think their impression of Starbuck’s. In this case, penny-pinching defeated customer appreciation. Perhaps Starbuck’s should have just offered 50% off the drink of their choice instead.

Polaroid sent a letter to 180 disabled employees that they were fired and their health, life, and dental coverage would be terminated on that same day. The employees fired by Polaroid were on long-term disability leave because of injuries or illnesses that left them too incapacitated to work. They are entitled to be compensated at 60% to 70% of their regular pay through a combination of social-security disability benefits and payouts from disability-insurance policies purchased by Polaroid. The loss of benefits was unfortunate and untimely as these employees were recuperating from cancer treatments, surgeries, suffering from heart and kidney ailments, and other serious diseases. They lost their coverage, and were expected to pick up COBRA policies for 18 months until Medicare kicked in. Not only is this type of coverage extremely costly, it conflicts with itself—COBRA renders you ineligible for Medicare.

International Steel acquired LTV Corporation’s assets, and re-hired many of the able-bodied employees let go in the original bankruptcy proceedings…but not the disabled workers.

MMI Company, a medical insurance and consulting firm, acquired Applied Risk Management (a worker’s compensation program administration company) and hired only the able-bodied employees from Applied Risk. Five employees on long-term disability did not get any consideration, and anyone on medical or extended leave was left off the hiring roster as well. MMI Company has since been acquired by the St. Paul Companies, an insurance firm. In defense of the policy and practice, a spokesman says that the company just doesn’t make enough profits to afford this kind of expense. A few lucky individuals have been able to sue for discrimination in court and win their cases. Most of them, however, weren’t so lucky.

Look around you: we have people that have been displaced by phone apps, robots, software, outsourcing, off-shoring, bankruptcy, and buyouts. Business has learned to hire slowly, and fire quickly. They've also learned to use resources that have only one-time purchase costs, with no lingering costs, such as benefits, pensions, or payroll taxes, that may be ripe for Congressional picking (think health insurance and Social Security here). Machines and robots aren't going to unionize any time soon.

Humans are well on their way to becoming obsolete. Witness the array of unmanned military vehicles, bomb trackers, research subs, space vehicles, and even every day cars (thanks to Google). How many self-checkout stands have you gone through at the grocery store? How many ATMs have you used in your lifetime? How much voice mail hell have you endured just this year alone? How long have automated car washes been around? Now you get the idea.

For every bright spot of progress in frugality, there’s an equal dark side. This is where penny-pinching adds insult to injury.


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