Playing Defense
Surplus Record first started publishing in 1924, nearly twenty years after the Chicago Cubs last won a post-season series until this year. Like many Chicago fans, we’ve been following our local “Cubbies” closely this year, watching what made the difference for them for the first time in nearly a century. For virtually all observers, the answer is obvious: a strong defensive game (specifically, a strong pitching staff). We believe there’s a lesson in this for businesses, both large and small. Businesses, like professional baseball teams, must learn to play defense as well as offense. While it is difficult for a business to thrive without some offense, it’s virtually impossible to succeed without a strong defense, especially in a down-market, where scoring “runs” is more challenging than ever.
How does one play a strong defense in business? By shoring up the bottom line. All businesses, regardless of size, can improve their defense by focusing on three key areas: reducing indirect spend, controlling payroll and bonuses, and making the tough decisions that directly impact customers and products.
Perhaps the easiest―and most transparent―these three areas is the indirect spend lever. And telecom costs are a great place to start. Given the rapid advances in information technology and communications in the past decade, even the smallest businesses can cut costs by renegotiating their telecom and network connectivity agreements. Both domestic and international long-distance can often be had for pennies a minute. And a broadband connection now costs 1/5 the amount it did just a few years ago. By making a few calls and doing a bit of research on Google, in less than a few hours even small businesses can save hundreds―sometimes thousands―of dollars in monthly telecom expenses.
Carefully monitoring payroll and bonuses is another way to bring to play a strong defense. By offering employees “soft” incentives like flex-time and Friday afternoons off during summer months based on performance, it’s often possible to maintain―and even improve―morale without increasing salaries. In challenging economic times, the key to maintaining strong relationships with employees is proactive communication. If it will not be possible to pay a bonus in a given year, be honest and open, and explain that the company would prefer to minimize―or entirely avoid―layoffs by uniformly cutting or canceling bonuses across the board. Ultimately, your most valuable staff will respect an organization that honestly communicates tough decisions in a timely fashion.
While reducing indirect spend and controlling staffing costs provide two relatively straightforward areas for actively controlling costs, often times the largest opportunities for savings come from making the tough decisions that actively impact your customers. To start, this might include reducing service costs by outsourcing the customer service function. A second strategy involves lowering expenses by knowing who your most profitable customers are and offering low touch services do your least profitable customers. This second strategy is best deployed by performing a SKU profitability analysis. While it might seem undesirable to kill off products or lines that are bringing in revenue in the short-term―or to reduce service levels for customers who are not as profitable as others―it’s defensive decisions like these that can keep a company in the game over the long haul.
Businesses can learn from the example the Cubs set this year. Even with a relatively average offense, they won their division and the first round of the playoffs―at least―through strong defense and pitching. While these areas alone might not take the Cubs all the way—it has at least given them an opportunity to stay in the game. For many businesses in this economy, sometimes staying in the game is the goal.
