I had a very real experience of a company managing costs at the expense of purpose.
Last week my wife and I went out for a meal to the local pub. This pub is typically a good, solid, safe choice. A mixed menu (we very much like different food), good price, good setting and usually good service.
Except on this occassion they appeared to be managing costs at the expense of their purpose.
Don’t get me wrong. It’s a torrid time for all businesses here in the UK (and no doubt everywhere) – especially in the hospitality industry.
With the UK economy set to contract, inflation running high, government destruction of the market, post pandemic legacy, rising fuel costs and Brexit, I certainly don’t envy anyone trying to get by in this climate.
And we’re also lucky enough to afford a meal out – this particular one was a cheeky lunchtime meal to celebrate our anniversary.
Upon arrival it was clear they were trying to save money and manage costs.
Cut Costs (and heating)
They only had the bar area open for seating in a bid to save heating costs across the rest of the pub.
We turned up and could only choose from a handful of bar type seating; next to the toilets (no thanks), next to the front door (too cold) and high seating tables that are typically used for snacking and drinking, not a romantic lunch time meal.
Not what we expect, but grateful for the chance to eat out.
Next came the ordering of food.
The poor chap on the till (checkout for those not from Yorkshire, England) had no idea what he was doing.
He was on his own and appeared to have only just started working there. Everything was too overwhelming for him. It took over 20 minutes to put through our order.
Management 101 – pair new people with those who know what they’re doing so the new people can learn.
To make matters worse, large parties of people were turning up. The queue was getting longer.
They also now had no choice but to open the rest of the restaurant too. As people took their seats and kept their coats on, and shivered, the staff struggled indeed.
They were spread thin to say the least. As they all sought heat (wood for the open fire), the poor guy serving had fewer people to ask for help.
The queue built up, he panicked more and nobody was around to help.
We ordered, a starter (of Halloumi Fries for the foodies amongst you). My wife ordered a classic Lasagna and I ordered the very British institute of Fish and Chips. I ordered some drinks, the guy said he’d bring them over once the queue had died down.
The queue didn't die down so it took 15 minutes for the drinks to arrive – just about the same time as our food – which all arrived at once – starters and mains.
The Lasagna was burnt but the Fish and Chips was very nice.
The staff were still busy trying to find and create heat. More people turned up. More people complained. More people were frustrated. More panic for the poor guy behind the bar. His first day! And the staff, being so overwhelmed, lacked any kind of pleasantry to diffuse the situation.
What’s the point of this story?
The point is this; it’s a tough time to be in business but it’s important to focus on your purpose – from the customer’s perspective.
When you lose sight of your purpose (the reason you exist) and focus on costs alone, your costs will always go up.
The costs will pop up all over the place, when your purpose is not being met. It’s a hard balance, but understanding, and then measuring, your purpose is the first step to success.
The purpose of the pub, from our perspective, is to offer a warm, friendly, welcoming, professional place for us to eat. That’s it. We’re outsourcing our cooking and dining to someone else. We expect to enjoy it.
When the customer’s needs are not met (a company’s purpose), they have choices. Our choice will be not to go to the pub again. A few other people said the same. And the reviews on Trip Advisor were terrible, potentially preventing new customers from even trying this pub.
With dwindling customers your costs will go up, certainly in comparison to revenue.
By trying to manage costs they had:
- No heat (and people like to feel comfortable when spending food in a restaurant).
- Untrained staff, left alone (and people like an efficient and effective service).
- Mis-communication between the front of house and the kitchen (we tend to like our starters to arrive before the mains).
- Overloaded the staff (busy finding heat, not seating people, not serving drinks).
But more importantly, they will lose customers.
They will have to spend more to overcome the poor reviews, make a good impression and keep the lights on.
The bar man was telling me they had also dropped wages, resulting in the long-term staff leaving. This is more costs; to recruit, to train, to spend time on staffing rather than other demanding aspects of running a pub.
It’s been tough.
I was grateful for the food (the fish and chips were delicious). We are lucky to be able to afford this. But the experience means we’ll go elsewhere next time.
We may conclude that all companies are struggling in this climate, and many are. Yet, we can always find many that are doing well too. A friend of mine runs a successful bar and he knows his purpose. His bar is always full, so much so that he’s investing in a second location.
With a clear purpose he knows what to measure, and can manage the costs around that purpose. He is still managing costs, but they are not at the expense of his company’s purpose.
Come back to purpose
Always come back to your purpose, rather than managing costs alone.
Why does the company exists – from a customer’s perspective?
Then double down on measuring that purpose, delivering on that purpose and managing costs alongside that.
When you’re managing costs alone your costs GO UP – maybe not immediately, maybe not directly where you expect, but somewhere in the business is a cost going up to compensate for not delivering on your purpose.
I see this in every single business I consult in.
Managing costs causes more costs, usually somewhere else. (And in many businesses this means it’s someone else’s problem).
If you’re lucky enough to own a profit and loss as part of your work as a manager, then you will see this playing out and can manage it directly. Cut costs against your purpose, and your costs go up. Managing costs is all part of your role but be careful where you focus.
- Cut software development costs, i.e cut corners, rush, hire less talented people (Capital Expenses) - support costs (Operational Expense) go up. And customers may leave.
- Cut design time when building apps - support and professional service costs go up.
- Cut professional service costs (used to onboard and train new customers) - support costs go up as people phone in to find out how to do stuff.
- Cut support costs - customers churn as they're not being supported, meaning more cost to acquire.
- Cut recruiting costs which lowers the standard - bad hires get brought in (and managers spend ages dealing with this drama) and, as many companies do with bad hires, then “paying off” bad hires to leave. This is truly inhumane but so frequent.
Wherever I see a cost cutting exercise, I can usually predict where the costs will pop up. It sometimes takes time, but it happens.
When companies (and teams) know their purpose and they know how to measure it, they can then experiment with new ways of working, optimisation and general improvements - all in line with their purpose.
They can try efficiency gains and cost cut experiments and they know immediately how this affects their purpose. If they start to lose their ability to deliver on their purpose the measures they have will tell them - and they can adapt as needed.
By understanding your purpose, and putting in place measures about that purpose, you can use data and insights to pivot, rather than simply starting with costs and wondering why costs are increasing somewhere else.
