Cobbler columnist John Timpson has a wealth of business experience. He shares his views on cost-cutting with us.
Careful cuts can save your business. Here, high-street legend John Timpson gives his views on when – and where – it's best to make cuts in your business. Read Margaret Heffernan's six golden rules on making cuts here.
I am embarrassed to admit that while trying to cut costs in the sixties, I worked out our per-capita consumption of loo paper. My survey revealed a stunning usage of half a roll per person per week! In truth I was “rearranging deckchairs on the Titanic”.
I’ve seen several rounds of cost cutting in the past 50 years, most initiated by accountants keen to take control at the slightest sign of trouble. They slash costs across the company but seldom save a penny in the finance department.
Six years ago, I spent a week at The DTI (now BIS) and was surprised to find so many people pursuing policy with so little obvious purpose. Peter Gershon had just started his cost-cutting campaign, and I found a department already full of empty desks. “I’ve beaten Gershon to the punch,” claimed the department head. “Ten jobs have gone,” he said.
“Where are they now?” I innocently asked.
“They’ve been redeployed around the building,” was the reply. The Coalition now has a chance to prune years of unnecessary public-sector growth. Yet I recently received an email from the NWDA (North West Development Agency), which is shortly to be axed – far from shutting up shop, they talked of handing over to LEPs (Local Economic Partnerships). We don’t want a successor body! We need nobody at all.
Politicians seeking popularity hope to increase wealth by spending more public money and creating extra jobs. But experience shows that the route to prosperity is to save money and cut jobs. That’s what works in business.
Sir Philip Green demonstrated the big gap between public and private sectors when he exposed the government’s inability to negotiate bulk discounts. I’ve no doubt Sir Philip could save us a fortune, especially if he was put on a ten per cent bonus. But he didn’t mention the importance of chopping down the number of people on the government payroll.
Avid followers of Parkinson’s Law are not surprised at the growth in our public sector. Government leaders (helped by consultants) make their mark by creating new departments, adding extra layers of management and launching new initiatives. Whenever they employ more people, an increase in cost is guaranteed.
The lesson is simple – to cut costs, reduce payroll. It takes the profit of one of our top performing shops to cover the cost of an extra clerk in head office. The same principle applies to the public sector: the average civil servant costs £45,000 and Joe Public pays £20,000 in tax (VAT, income tax, council tax etc) – we can’t afford a public sector that represents more than 50 per cent of the economy.
Cutting workforce can often do a company more good than harm. Look at almost any organisation and you will find people surplus to requirements, people doing jobs that are not needed and others who are useless at the job they are there to do.
The previous paragraph is certainly politically incorrect – but it is terribly true!
Recently, a part of our business was making a loss. Each attempt at reorganisation made matters worse.
I was ready to throw in the towel, but James had a solution. He rated everyone out of ten and only kept the eights, nines and tens, halving the team. Within weeks, we were in profit.
Ministers talk about tough choices but are seldom tough enough.
It takes several civil servants to change a light bulb. Before the job can be done, they must consult health and safety, the eco committee, HR (who always get involved), finance and many more. By streamlining the system, we could save jobs and change a lot more light bulbs.
I know you’re thinking that if my theory was put into practice, there would be six million people on the unemployment register. But by releasing workers from useless or unsuitable jobs, we increase our nation’s capacity to create wealth. New businesses are formed and new jobs become available. Remember where we started.
The way to cut the cost of loo paper is to employ fewer people.