Managing in tough times

Today everyone who has something to do with money - economists, businessmen, housewives - are talking about economic downturn and recession.

Downturns can be opportunities for companies to get serious about transforming into lean enterprises, i.e., to identify wastages, and redefine processes to eliminate wastages. But unfortunately hard times also lead to knee-jerk reactions offered as fixes for managing the downturn. And most noticeable is the spate of lay-offs.

Listen to these words of caution in a recent newsletter by James P. Womack, Founder and Chairman of the Lean Enterprise Institute, and co-author of 'Lean Thinking'. He was talking about ways to tackle the impending recession of 2009:

The very last thing to consider is the one thing managers seem to embrace most readily: cost cutting. This means leaving out steps and features that actually create value from the perspective of the customer and removing employees who are actually needed to get the job done right using the current process. The hope, usually wrong, is that the customer won't notice.

This last expedient is the one I most fear, because it is likely to be justified in the name of "lean". Every recession seems to produce a major cost-cutting campaign sold by traditional consultants. Their key promise is rapid financial payback, even within one quarter, and the only practical way to achieve this is layoffs. I truly hope that the recession of 2009 will not be known to history as the "lean" recession and everyone in the Lean Community should vow to avoid the cost cutting urge in their own organization.

Navigating in troubled waters require equanimity of mind - not only of the senior management team, but also of everyone in the organization. What can be more damaging than knee-jerk cost-cutting measures and lay-offs? Listen to the words -- most managers are talking about cost cutting, not cost management.

A few weeks ago, the largest private airlines in India, Jet Airways, laid off around 1900 employees. And took them back within 24 hours. What would be call this, other than knee-jerk reaction? That was certainly not the way to manage costs.

Recently I was at the new airport in Bangalore. I was impressed by the scale and grandeur of the airport. But it also made me think - why so much of wastage? Why should I bear the cost of such large scale civil and interior work, when all I wanted was to get to Mumbai by a low cost flight? I didn't want to spend my time lounging around as if I am in the lobby of a five star hotel. I was not on vacation, but on business.

Now, look at it - let the airlines and the airport authorities and all the stakeholders in the air travel ecosystem examine what the customers really want. Just give them that with minimum wastage. I for one, wanted economy and speed in getting from Bangalore to Mumbai. If someone wanted a luxurious lounge at the airport, they could have some exclusive space for them. That's OK, but most passengers wouldn't want to pay higher for that, especially when it is only a matter of a few minutes of waiting.

The key point here is this: save money by reducing wastage, not by the popular cost-cutting measures. Wastage is created when we don't build the value chain to deliver what the customer really wants. In the case of Bangalore airport, wastage is built into the infrastructure. Every customer and every airlines will pay the price for many years to come.