Waste Not, Want Not
Thought Leadership: From the CEO’s Desk – Richard Leaver, CEO
To be successful it is imperative that a business grows. The old saying grow or die certainly rings true for many businesses as the cost of operating increases year over year. I would suggest that good leaders strategize and manage growth. However, a great leader not only focuses on growth but also keeps a careful eye on expenditure. A myopic approach of attending to either growth or cost will stymie a business in the long run. Focus must be applied to both sides of the income statement. In this post I want to focus on expense.
Most operational leaders are familiar with the concept of waste and the seven common types of waste (Muda) identified in a kaizen event. In addition, many understand the eighth waste of non-utilization of talent or ‘skills’ of employees. However, I would like to suggest a ninth type of waste and call it ‘unnecessary’ or ‘covert’ waste. This ninth type of waste is prevalent in most businesses and largely remains unnoticed or ignored. It is difficult to define precisely as it includes many types of expenditure that add no value to the primary business function of an organization. Let me explain with examples:
- Obsolete items. E.g. Newspaper advertising, magazine subscriptions, cable television, water coolers, etc
- Late fees incurred through not paying bills on time
- Auto-renewal agreements not being caught in time and continuing to incur costs
- Bundled services that are not needed or under utilized
- Consumption of services at a frequency higher than is necessary (e.g. using cleaning services every day when once a week would be adequate)
- Purchasing expensive brands instead of generic products that are cheaper
- Consuming and servicing goods and services that are over engineered for the purposes it is being used for. E.g. using a premium membership of a software product when a basic membership would be adequate
- Paying for a product or service you no longer use but have been too lazy to stop
- Using too much of a product
- Continuing to purchase a product or service because you are afraid there might be a negative impact if you stop, even though there is no evidence the product / service you are consuming is not provided a ROI
- Continuing to incur a recurring charge for a service that should be renegotiated and set at a lower rate.
- Paying an invoice for a service or product that you didn’t even receive or actually someone else’s bill
Leaders who approve the payment of expenses assume that the products or services are necessary, appropriate, utilized, priced competitively and consumed. Unfortunately, I would suggest there are many expenses currently being incurred by your organization that fit into this category of ‘covert’ waste.
I challenge you to look more closely the next time you approve an expense!