It began simply. The laundry washer breaks down and a repair company is called to fix it.
In my April column, "Your Choice in Cost Control," I challenged the traditional builder mentality of slashing overhead first whenever margins tighten. I asked where you would go if you need a lot of money — 7-Eleven or the Bank of America — and made parallels to home building: slashing overhead or finding creative ways to cover costs. The answer was obvious given that the combination of house cost and variable land development cost amounts to 12–15 times the overhead line for the average builder.
But there was a catch. Going after the Bank of America requires time, planning, people and considerable risk, whereas in contrast, almost any local bad-boy can knock off the 7-Eleven on a whim. Although builders claim they want the big bucks, observation says otherwise. As we continue to watch the housing market slow, the convenience store mentality prevails; overheads are the first to go.
I'll refer to a quote from Willie Sutton, often recognized as the world's greatest bank robber. As an old man, finishing up his days in federal prison, a reporter asked why he robbed banks. "'Cause that's where the money is!" he said.
That is why you should be going after house cost and variable land development cost instead of overhead, and many of you agree. Since that column I have given several presentations on the subject, and through e-mails, phone calls and conversations, a pattern has emerged. About half of those I hear from are CEO/COO types who want to know how to get through to their field operations and focus them on finding "the real money." The other half comprises members from these very same field operations, asking for help in getting the CEOs and COOs to understand where that same money is!
Once again we confront a problem that people seem to grasp conceptually yet have a hard time solving. Hammering the overhead line shows immediate results and impresses the boss or the board — and shows you are a serious operator. Deciding to maintain the overhead or even spend more money to go after the big prize ... that's just too much risk for most of us to bear.
Yet, some of you have convinced me you are ready to give it shot and have asked for my list of favorite targets, so I will give it up.
So here are "Sedam's Strategies — Where the Money is," where I know that you can find $5 bucks for every $1 you cut in overhead.
Still don't think there is six-figure money out there? Bet on it.I said from this list I can guarantee $5 for each $1 you cut in overhead, but $10 is very doable, and I have seen much more. And here's the no-added-cost bonus — you will also save yourself the considerable damage you were about to do by cutting salary increases, bonuses, training, perks, special events, charitable contributions and the big and little things that make your company a special place to work.
Is there a catch? Absolutely. Although cutting overhead will produce immediate results on paper, it typically takes 90–180 days to see significant dollars in the 10 areas cited above, depending on your culture and how much preparation you have to do. Many companies, however, have found big money in 30–60 days. No matter what your horizon is, do the math, and you will find the return rate to be well worth a little patience and some hard work.
|Scott Sedam is President of TrueNorth Development, a nationwide consulting and training firm focused on quality, process improvement and organizational development. He can be reached at email@example.com.|