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New business math: Addition by subtraction

Inside Business

Posted: July 29, 2008 11:45 p.m.
Updated: September 30, 2008 5:02 a.m.
 

Last week, the Super Bowl-winning New York Giants traded tight-end Jeremy Shockey to the New Orleans Saints. Shockey had been a Pro Bowl pick for a number of years and had solid statistics, including having 371 catches for 4,228 yards and 27 touchdowns in 83 regular season games with the Giants.

Whenever a team trades a star, the fans, of course, weigh in with their opinions. One fan's comment that stuck out was that the end result of the trade was "addition by subtraction." Meaning, the team will get better because this player, despite the wonderful statistics, will no longer be with the team. The author of that comment mentioned that Shockey had to have been a distraction to the rest of the team due to his "...continual, infantile histrionics."

Most organizations can become better (addition) by doing or having less (subtraction). There are four main areas where this can take place.

The first area is people. Having people on the payroll is expensive. It isn't just the cost of the salary, taxes and benefits. There are additional costs to consider, including the cost of variable expenses (telephone, office supplies and the like), fixed costs (space) and the question of contribution to profit (Will this person add to the organization's profits or detract from them and how much?).

Individuals who are not producing are the easiest to identify and target for subtraction from the organization. As difficult as it might be, asking people to move on to other opportunities where they can make a more significant contribution is not necessarily a bad thing for either the company or the employee.

Most companies are over-staffed in one way or another. Jack Welch's "fire the bottom 10 percent of the workforce" philosophy made some sense generically but assumed an arbitrary number of employees are not contributing. In fact, the number could be higher or lower depending on the situation. Many of us know entire organizations we'd like to makeover starting with the termination of everyone.

This analysis of "who's helping and who's not" should start at the top levels of the organization and work down the organizational chart. It is often the higher paid managers who are not really making the level of contribution to the success of the organization that their level of responsibility, title and pay indicates they should or could.

Even high producers (see Shockley above) can be a negative force within an organization. No one has time or energy for employees who are high maintenance. This would mean someone who constantly needs to know everything that is going on; someone who is more concerned about what everyone else is doing (or getting) compared to what they are; someone who is constantly complaining about what they are not getting; someone who needs constant praise or reassurance. The "not getting" could include money, attention, perks and time with the boss.

Addition by the subtraction of people will see a number of transformations, including an immediate boost in morale on renewed energy and an increase in the belief that those in charge know what they are doing.

The second method of addition via subtract is through the elimination of meetings without purpose. What kind of meeting is that? One without an agenda, one without stated goals, one without time limits and one that ends without decisions being made.

Why would anyone want to do this? Aren't meetings the lifeblood of the organization where the team gathers and communicates? At the next meeting, take the number of people sitting around the table and assign a value to their time.

In addition to the hourly rate, add an additional 50 percent to that figure to cover taxes and benefits, variable costs, overhead and profit contribution. Multiply the people times the hourly rate times the number of hours the meeting will last to arrive at a dollar figure for that meeting.

By subtracting the true cost of the meeting you have added back in what could be very productive time spent actually getting work done for paying clients.

The third way is to improve cash flow and profits (addition) by reducing expenses.

Most people in companies have no reason to reduce expenses; there is often no penalty or incentive to do so. Most employees would rather seek forgiveness than permission if they get caught. It is a rare event for an employee to be terminated for inappropriately using company resources (managers do it too!). Knowing that, people, given the small risk involved, would rather spend the organization's money than their own.

Every organization can reduce expenses. Every organization can rethink how it spends money, starting with putting into place a purchase order control system and reducing the authority to spend money to a few individuals who have profit and loss responsibility.

The final area relates to clients. Some clients are simply worth more than others. Revenue, cash flow and profits can be added by simply subtracting (eliminating) those clients who are no longer worth serving.

The new math is an easy concept to understand and perhaps a bit harder to take action on. Taking just a few minutes to start on the subtraction list can be the start of a lot of terrific additions to any organization.

Kenneth W. Keller is president of Renaissance Executive Forums in Valencia, bringing business owners together in facilitated peer advisory boards. His column represents his own views and not necessarily those of The Signal.

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