People conversation in coffee breakYou may not recognize the phenomena by name, but many have experienced it. The coffee pot syndrome (CPS) is the first signal that a business has performance issues. CPS occurs when a business isn’t achieving profitability objectives and starts looking for ways to cut costs of operations.

The Symptoms

CPS manifests itself differently in each organization, but the most common are:

  • Charging for coffee where previously it was supplies
  • Reducing the choices – leaving decaf only (Always a bad idea to withdrawal caffeine at the same time as cutting costs)
  • Cutting the cream and sugar
  • Eliminating coffee pots in the workplace

CPS is a serious condition arising in many organizations. The missing coffee pot symbolizes a turning point in organizational operations. It signals to the workforce that the organization is moving emphasis from generating top-line revenues to preserving bottom-line numbers through cost cutting.

The disappearance of the coffee pot is much like dropping a boulder in a lake or a pebble in a puddle; the psychological waves reverberate throughout the organization with resounding consequences. The disappearance of the coffee pot may seem an insignificant act to many including organizational leaders, but the reality is that the impact on the organization can be as debilitating to morale as more significant cost cutting measures. It may seem ridiculous, but there will often be more conversations about when the coffee pot was removed than when the first layoff occurred. Seemingly it is easier to get rid of the emotions by attaching them to the coffee pot rather than to individuals.

Because businesses “run lean”, cost cutting as a means of preserving the organization is often seen, and rightly so, as the last ditch effort. Few businesses run with excess capacity or “fluff” in the organization. When the coffee pot goes, the workforce braces for other more significant and meaningful reductions such as layoffs, offshoring, and outsourcing.

When a business reaches the point of layoffs, it generally means that they have failed to grow the top line revenues and must reduce the cost structure of the organization. Meaningful cost reductions ultimately include the labor force which continues to be a significant investment for businesses in this age of technology and service focus.

Cost Cutting Is a Strategy of Imminent Failure

Cost cutting as a long term strategy is inevitable failure. Practically, there are a finite number of costs that can be cut that will not impact competitiveness and capacity. If the strategy of competition is to always seek lower cost in existing operations, just how many ways are there to eliminate costs.

Again, there are a finite number of opportunities to move operations to lower cost labor markets. Moving to less expensive materials ultimately will impact performance, quality, and production. Reducing options, complexity, and other differentiation leads toward commoditization putting additional pricing and cost pressures on the business. So where does that leave businesses that are experiencing lower profits?

Signal to Reevaluate Market Demand and Needs

CPS as a syndrome and a strategy means the business must begin to address how to grow top line revenues and grow sales and profitability in a meaningful way. The bottom-line is that competing on cost may be terminal.

Businesses must be able to grow the top line revenues and contain costs of expansion and growth in order to compete and succeed. Cost control is the critical competitive factor, not cost cutting. When you are cutting costs it is either cutting into capacity or an acknowledgement that “extra” costs have crept into the process.

Bigger isn’t better. Market share at any price isn’t logical. The acquisition and merger mode that prevails isn’t necessarily wise or healthy. Businesses that have voracious appetites to grow need to keep in mind the need to run those new acquisitions and expanded operations. The ability to integrate divergent technologies, operating systems, corporate cultures, and a host of other factors is a first step in eliminating unnecessary costs and controlling the tendency for “fluff” to get into the systems. Poor integration of acquisitions and an inability to run the acquired businesses profitably and with positive cash flow from operations will lead to the new coffee pots going out the door in rapid succession.

Mindset over Matter

The mindset of business must be to prevent extraneous costs from creeping into the process of business. The “little bit extra”, the “small provision”, the “spend or lose it” mentalities that ultimately cause businesses to be lost. The costs of acquisitions and duplication of systems must be evaluated an incorporated into transition and operating plans.

Where Results Are Measured and Impact Is Made

The processes and activities within in businesses are where results and costs are measured. Yes, the product, service or technology is what is sold to the customer; however, it is the total cost of business and the processes and activities engaged in that determines the bottom-line. How well business is done – from the marketing and sales processes to the internal management and financial system – is the measure of the ability to increase both revenues and profit.

Copyright ©2006 Lea A. Strickland, FOCUS Resource, Inc.

 

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