Tough on costs and the causes of costs
Stefan Stern | Wednesday, 18 June 2008
First, a salute to the ingenuity of the publisher. With oil and other commodity prices rising, and consumer demand falling, what businesses need is some clear guidance on managing costs.
As luck would have it, here is a crisp new book on that very subject. Its author, Andrew Wileman, is a seasoned management consultant - a veteran of Booz Allen, BCG and OC&C. In recent years he has worked as an independent consultant while dabbling in journalism.
This book combines all the virtues and vices of those two trades. Mr Wileman's text is irrepressible: jaunty, energetic and all-knowing. The reader gets a clear sense of what it would be like to be cornered in a meeting room for a couple of hours with Mr Wileman the consultant.
That is mainly a good thing. The author knows his subject. He has been cutting swaths through flabby balance sheets and cost structures for three decades. He has heard all the excuses why certain costs are untouchable or unmanageable. He does not accept a word of them. And he urges his readers to be equally unflinching and persistent in their attack on costs and the causes of costs.
The book is refreshing in many ways. Rightly, the author points out that good cost managers are the "unsung heroes" of business. We all prefer to talk about strategy or growth or culture. "You can read Fortune or Forbes or The Economist for a year and not come across an article that's mainly about cost management," he says.
In fact costs are the biggest drain on businesses that would otherwise be much more successful. Without good cost control, Mr Wileman says, you are like a potential champion golfer, who hits beautiful shots getting the ball on to the green but keeps failing to hole the putts.
Why do costs spring up and get out of control? Partly, Mr Wileman says, it is down to the over-matrixed organisations in which so many of us work. "Every cost initiative you come up with ends up having three or four names tagged to it as 'responsible'," he says. When everyone is responsible, no one is.
Then there is the problem of that seductive word, "strategy". "The one common characteristic of strategic partnerships is that they seem to cost a lot of money with no concrete return," Mr Wileman says. Here he is echoing the Financial Times columnist John Kay, who has observed that "strategy" usually turns out to be synonymous with "expensive" (q.v. "a strategic investment", "strategy consultant").
A basic grasp of balance sheet realities can also help in the quest to control costs. Mr Wileman is merciless on Ebitda (earnings before interest, tax, depreciation and amortisation). "Taking out depreciation is just absurd," he says, offering an alternative acronym, Ebapta: earnings before any payments to anybody. Strangely it is yet to catch on.
Although he is evangelical about managing costs, Mr Wileman remains realistic. He is guided in this realism by that great management guru, Dilbert. Or rather, by Dilbert's boss, who observes: "Hmmm. If I cut costs enough, I can make money on no revenue."
Mr Wileman is tough on headcount, suppliers, outsourcing and timeframes for action, but he is neither vandal nor sadist. He just hates unnecessary cost.
The book is not perfect, In a final chapter on managing costs in the public sector, Mr Wileman displays the characteristic swagger of the (over-)confident consultant. "I have not personally worked much in the public sector," he admits. "So ... I am arguing from logic and research, not from the deep first-hand experience of the rest of the book."
He then breezily trashes the public sector for its outrageous flabbiness and waste, without properly engaging with the complexity of its work, or why the size of different public sectors varies from country to country.
Never mind. You can take or leave Mr Wileman's advice - and if you choose to go your own way, there will be other clients grateful for his distinctive blend of candour and can-do.
As luck would have it, here is a crisp new book on that very subject. Its author, Andrew Wileman, is a seasoned management consultant - a veteran of Booz Allen, BCG and OC&C. In recent years he has worked as an independent consultant while dabbling in journalism.
This book combines all the virtues and vices of those two trades. Mr Wileman's text is irrepressible: jaunty, energetic and all-knowing. The reader gets a clear sense of what it would be like to be cornered in a meeting room for a couple of hours with Mr Wileman the consultant.
That is mainly a good thing. The author knows his subject. He has been cutting swaths through flabby balance sheets and cost structures for three decades. He has heard all the excuses why certain costs are untouchable or unmanageable. He does not accept a word of them. And he urges his readers to be equally unflinching and persistent in their attack on costs and the causes of costs.
The book is refreshing in many ways. Rightly, the author points out that good cost managers are the "unsung heroes" of business. We all prefer to talk about strategy or growth or culture. "You can read Fortune or Forbes or The Economist for a year and not come across an article that's mainly about cost management," he says.
In fact costs are the biggest drain on businesses that would otherwise be much more successful. Without good cost control, Mr Wileman says, you are like a potential champion golfer, who hits beautiful shots getting the ball on to the green but keeps failing to hole the putts.
Why do costs spring up and get out of control? Partly, Mr Wileman says, it is down to the over-matrixed organisations in which so many of us work. "Every cost initiative you come up with ends up having three or four names tagged to it as 'responsible'," he says. When everyone is responsible, no one is.
Then there is the problem of that seductive word, "strategy". "The one common characteristic of strategic partnerships is that they seem to cost a lot of money with no concrete return," Mr Wileman says. Here he is echoing the Financial Times columnist John Kay, who has observed that "strategy" usually turns out to be synonymous with "expensive" (q.v. "a strategic investment", "strategy consultant").
A basic grasp of balance sheet realities can also help in the quest to control costs. Mr Wileman is merciless on Ebitda (earnings before interest, tax, depreciation and amortisation). "Taking out depreciation is just absurd," he says, offering an alternative acronym, Ebapta: earnings before any payments to anybody. Strangely it is yet to catch on.
Although he is evangelical about managing costs, Mr Wileman remains realistic. He is guided in this realism by that great management guru, Dilbert. Or rather, by Dilbert's boss, who observes: "Hmmm. If I cut costs enough, I can make money on no revenue."
Mr Wileman is tough on headcount, suppliers, outsourcing and timeframes for action, but he is neither vandal nor sadist. He just hates unnecessary cost.
The book is not perfect, In a final chapter on managing costs in the public sector, Mr Wileman displays the characteristic swagger of the (over-)confident consultant. "I have not personally worked much in the public sector," he admits. "So ... I am arguing from logic and research, not from the deep first-hand experience of the rest of the book."
He then breezily trashes the public sector for its outrageous flabbiness and waste, without properly engaging with the complexity of its work, or why the size of different public sectors varies from country to country.
Never mind. You can take or leave Mr Wileman's advice - and if you choose to go your own way, there will be other clients grateful for his distinctive blend of candour and can-do.