Why You Always Should Focus On Cutting Costs
...Regardless Of How Profitable Your Company Is
There it was in my in basket. A memo from Jack Gifford, the CEO of Maxim Integrated Products, with the title, “Use of office supplies.”
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The memo went something like this:
“To: All Maxim Employees
From: Jack Gifford
Subject: Use of office supplies
I’ve been looking at our spending on office supplies. There’s been a 15% increase in the use of pens, quarter on quarter. This is excessive waste and misuse. Effective immediately, you will need to return your used pen in order to receive a new pen.”
I groaned and I laughed at the same time.
You should always try and reduce unnecessary waste.
This move was just so in keeping with Jack’s personality. At the time our net margins (this is your profit before taxation) were pushing 40%. If you don’t know, that’s an incredibly good number.
But there was Jack, pissed off that we were, in his way of viewing things, throwing away perfectly good pens. Maybe Jack was right, but spending time on pens? Really?
The talk around the office that morning was predictable. “Did you see Jack’s memo on pens?” Then we all shook our heads in disbelief.
I wondered how much money we would really save by eliminating this excessive spending on pens? $100? Maybe $1,000 if I was being generous.
Your focus on the details forces the rest of your team to focus on the details.
I was missing the bigger point. Gifford’s point wasn’t about the pens. Gifford’s point was to never spend wastefully regardless of how profitable you are.
At the time, we were all annoyed that if we lost a pen that we couldn’t just get a new one. In fact, I think we had to, get this, write a note to Jack explaining what happened to our old pen if we couldn’t produce the old pen to the supply manager.
The policy lasted about a few months before Gifford got tired of reading various mea culpas about how we lost our pens. That’s how Jack rolled. He’d throw out an outrageous policy, and he’d expect you to deal with it. Jack would only relent if enough people complained.
It all starts with you.
Let me contrast Jack's focus on waste with that of "Bob", another CEO I worked for in the same industry. Bob certainly talked the talk.
Bob said the right things, but the words were empty. There was tremendous waste throughout Bob's company. So instead of the 40% net margins Maxim enjoyed, Bob's company had, in the good times, net margins of 20%.
Before the great pen caper, there was the great computer caper. And before the great computer caper, there was the great voicemail caper. Each time, Gifford’s zeal for being overly frugal didn’t work. Or did it?
It’s from Gifford that I learned what I called being “appropriately frugal.” You don’t scrimp on spending money where you need to spend money. However, you save money where you can.
For example, we didn’t scrimp on our employee salaries or on healthcare. At the same time, we did everything we could to delay major purchases in order to reduce our costs.
For more, read: How Being Too Frugal Can Hurt Your Company