In tight times executives look to cut cost by reducing waste and abuse while focusing on what really matters. This makes sense, particularly as an economy shifts from growth or stability into recession.
Waste delivers a one-time benefit. You do not reallocate the waste into a ‘waste bank’ for future savings.
Relying on waste as a source of funding is not as simple as it seems. Consider the role of removing waste and fraud in the U.S. Healthcare reform debate. Waste and fraud are expected to be a major source of funding healthcare proposals – the questions voters should be asking include:
If you know there is waste and fraud in the system, then why did you allow it to exist? Why not get rid of that now?
If the answer is nothing, then you must be allowing waste and fraud to create an “inefficiency bank” that you will use to pay for your policies. Does that seem right?
Waste is not a source of sustainable funding unless you create new sources of waste as you are cleaning up the current mess.
It is easy to see the same reaction when the CIO announces significant waste reduction and savings.
Waste handling requires special attention at the executive reporting level. While its great to report on the savings generated by reducing waste, reporting waste raises the question – why did it take you this long to get these savings?
This question came home to me about two years ago when a CIO of a Fortune 50 CIO announced at a luncheon that he had saved more than $100 million dollars in IT. He was proud of the accomplishment, but another CIO sitting at the table raised a damning question:
- “What was the business’s response to the fact that you were stealing $100 million dollars per year for all these years?
- What could the business do with that money to help it grow that they could not do because you were wasting $100 million?”
These were great questions and they that put the other CIO on his heels. What he saw as a one-time virtue, others saw as stealing resources for multiple years.
By all means, get the efficiency gains from removing waste, but recognize the challenges with capturing and sustaining those gains and how you report them.
Effective leaders manufacture resources by raising productivity and contribution of their resources. Less effective leaders create and withdraw from the ‘waste bank.’