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Increasing cost control&mbdash;by reducing it
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When times are tough, costs have to be cut. Most people who want more control over their money want the staff to get approval for all purchases, make sure their employees aren't wasting money, and tighten oversight of decisions. But, in the long run, tightening control this way can reduce cost control, lower motivation, and hurt decision quality.
You can actually increase your control by reducing it, if:
- people in your business are motivated to do a good job.
- you decide on three or four important, long-term goals, and make them clear to everyone who works for you.
- you are willing to risk some short-term losses to gain greater long-term savings;
- your employees have enough information to make good decisions (most people underestimate the knowledge of their employees).
- you hold people accountable for results and reward them for doing well.
If this doesn't sound like your situation, then you may not be ready to try the techniques below. But you may still want to keep them in mind, because sometimes it pays to sacrifice a little direct control.
Take a chain store manager whose decisions must be approved by his immediate manager and the head of the company. He may make some "iffy" decisions, knowing that the ultimate responsibility for the decision rests with his manager.
His manager, though, has her own work to do; when she gets the approval form, she signs it without paying much attention. As the decision goes up the company ladder, each personnend test is rs are responsis The end result is that nobody is really responsible.
The alternative is to place all responsibility with the manager, holding him accountable for all his decisions together instead of each decision separately. He can be held to a budget; store profitability can be compared with that of similar stores and past results. There is a risk that he will make some bad decisions, but would those mistakes have been caught earlier?
Given more responsibility, the manager is more likely to more closely scrutinize his own decisions; consider long-term effects; and reject unnecessary costs. If the manager is evaluated based on his performance in the long term, he may even be less likely to be corrupted (e.g. with kickbacks), because of the natural desire to pay back the trust the store has shown in him and to maintain a good performance record.
The Evidence
Turning control for each decision into long-term control for results has been studied for decades. In Maher and Overbaugh's New Perspectives in Job Enrichment, Paul, Robertson, and Herzberg stated,
“procedures that
guard against hypothetical errors and imaginary irresponsibility breed the very carelessness and apathy which result in inefficiency... as managers, we start having positive control of the job only when we stop concentrating on how to control people.”
Their findings were based on a study done by Imperial Chemical, where an experimental group was given direct flexibility in setting prices. The experimental group increased sales by 19 percent; the unchanged, control group's sales fell by five percent. "Reduced" control led to greater profits and increased employee satisfaction.
The principles are the same in any business and at any level. Similar studies have been conducted with janitors, railroad crews, microwave station operators, factory workers and many other groups, all with positive results.
Action Steps
Take a look at the papers you sign and the decisions you okay. Ask yourself:
- Do I really know more about this than my employee does?
- Is this important enough for me to spenchm time on?
- What is the effect of this approval on my employees?
- Am I working longer hours than I'd like to, and, if so, is there anyone I can safely delegate some of my responsibilities to?
- Is there a way to control the consequences, rather that the actions themselves?
If the answer to any of these questions yes, then you're got an approval which should be disapproved.
Another way to start is to ask your employees how they feel about approvals and responsibilities.
Although they may be slow to open up and discuss their feelings and beliefs, some of their insights may be valuable. Often, outside consultants or other parties are brought in to speak with employees to find out what they re thinking and what ideas they have for improving business.
Consultants may see things you can't; often have a wider range of experience; and usually invite more candor from employees. Consultants with process skills can help your transition to a more responsibility-based business.
Should You Use It?
At first, the idea sounds ludicrous: gaining control by reducing control.
But if you require too many approvals, people will get a feeling that you don't trust them; that you're hanging over their shoulders, waiting for errors; and that they don't have to take full responsibility for their actions, because you're checking their work. This can cause resentment, anger, lost sense of responsibility.... in short, poor performance and poor decisions.
On the other hand, if you hold them accountable for their long-term results, reward them when they succeed, disincentive them when they don't and allow a few mistakes to be chalked up to learning, they will take full responsibility. They may feel much better about their work and take greater interest in it; and, if you provide them with clear, long-term company goals, chances are they'll adopt those goals on for themselves, as well.
Giving people the full responsibility for their actions isn't just the most humane or the most profitable way; it's also the easiest way, in the long term, for you. Without the distraction of unnecessary approvals, you can go ahead with the more important work of planning, global decisions and just plain enjoying your life.
The 2024 update
This story is from 1997. Since then, I have delved more deeply into systems approaches, such as the late Chrysler’s SCORE which saved them billions of dollars and increased quality. It is tragic that the typical “cost cutting” effort even now focuses almost entirely on cutting needed staff, moving jobs to lower-cost countries without regard for coordination or carefully built expertise, and being “tough” with suppliers—which can have long-term negative consequences. These modern-day efforts can often be viewed cynically by outsiders, as executive compensation is rarely subjected to cost cutting.
© 2018-2025 David Zatz.