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Vol. 54: The road to cost control

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The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.

This page provides the Print-Friendly Version of the article, as published.

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The electronic version of the article, as published, may be found here.

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Article published -November 30 2009larykirchenbauerhdr

Is fear or kindness the road to cost control? You decide

Strive not to be a success, but rather to be of value.”

– Albert Einstein

Last time I presented the dichotomy of two opposing cultures and posed the question: If measured by financial performance, how can dramatically different organizations be equally successful? In this continuing series, we’ll explore some of the combinations and permutations of sound business principles and cultural patterns that often collide within an organization’s walls.

In many ways, it doesn’t seem fair that both charitable and churlish cultures can thrive. It’s easy to embrace the benevolent culture created by Sid Rich (we’ll call it Company South, “S” for Sid) as profiled in my last column.

That company deserves to be successful. Wouldn’t it be great if that was the company I worked for? Contrarily, when you look across the aisle at the rough and tumble world of Company North (“N” for Nasty), highlighted by temper tantrums, public floggings and a petulant devotion to spending a dime on anything, we’re either glad we’re not working there … or wishing we didn’t.

Some powerful lessons are evident as we compare and contrast these companies, their styles and culture, although some lessons are not very inviting. Some of you might be thinking, “whatever works,” that a few core principles like product differentiation, low cost and aggressive pricing offer a pretty simple recipe for financial success. If those concepts are working, why worry about the culture. It’s just whining, isn’t it? We’ll see as we go along.

One troubling lesson is clear: Loyalty, or at least fealty, can be bought. Company North was a revolving door of executives. The president left the company and returned twice, the EVP once, the CFO twice, all for a much higher salary, more accurately, combat pay. The psychic income came from the marketplace, which was gaga over the products that were flying off the shelves at top department and specialty stores across the country. Sales were booming so the opportunity to travel frequently to meet with retail executives was both alluring and satisfying – and a good excuse to get out of the workplace dungeon that served as the company’s headquarters.

At Company South, I don’t remember any senior executive leaving during the almost six years that I was there. Some probably should have, but the company was patient, if not indulgent, with certain executives that had “earned their spurs.” The company made these decisions consciously and continued its march to revenue and profit enhancement to support those investments.

Company South drew an important distinction between conscientious cost management and contentious cost reduction. It was vigilant about cost control but not at the expense of a strong culture that embraced hard work and spawned unwavering commitment. Its employees were engaged in the cost containment process and didn’t feel threatened by its intelligent application.

Contrarily, at Company North, no one was safe, and everyone knew that cost reduction, at all costs, was the presiding model. You could be in the line of fire yourself and not know it until the bullet hit. As a result, employees were defensive about their cost centers but eager to implicate other departments.

The economy in which we’re mired reminds us that cost management is a laudable goal. Frugality has been resurrected as the patron saint of a recovering economy.

In this environment, it’s easy to forget that people are the cornerstones of our businesses. Yes, there are difficult decisions to be made about people in a suffocating economy. But it can be done with dignity and honor, and employees can be engaged in the process as companies seek to survive and rebuild into 2010.

Some executives seem to believe that fear is a stronger motivator than love. A lot of management treatises conclude that such is the reality of the human condition.

We’ll continue to explore some of these business tenets when we’re together again and learn more about the ingredients that fostered the success of Company North despite its detestable culture. We’ll also see how essential principles can be applied like emery paper rather than a switchblade as we evaluate the success of Company South.

KBO.

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