What’s your largest business operating cost? Materials? Salaries and benefits? We all know that when we reduce business costs, we can have a major impact on the future of our company, so we tend to be tuned into this question. In fact, you probably probably named your answer instantly.
Now, pretend I’m your new financial VP, and I say, “Let’s keep paying these business costs, but I’ve told our people to stop recording the invoices. We’ll just throw them away. No tracking, no trying to improve the numbers. We’ll just let those costs happen.”
I can only guess how shocked you’d be.
Well then you may be shocked to learn that you and your organization are doing this exact thing. You are ignoring your largest cost. The spending waste associated with this oversight is draining your business every single day, but you never get an invoice for the amount you’re losing, so you’re not recording it.
What is this hidden cost? You’re not getting the most from your people.
If I provide you a service and send you an invoice for $5,000, your accountants record it; you see it and are aware of it. But if I’m a salaried employee wasting $5,000 worth of time each quarter—whether due to mismanaged time, misdirected priorities, missed opportunities, or an array of other “mis”steps—you never see it.
In the world of accounting, this waste does not exist because there’s no invoice associated with it. But in the world of management—in the world of improving your bottom line—this cost is as real as it gets.
Reduce Business Costs by Optimizing People
Here’s the good news: you can reduce business costs by getting the most from your people.
“If they’re not doing their job, I’d fire them,” you say. But that’s just it; most of these people are indeed doing their jobs. They’re just delivering less than they’re capable of—operating below 100%.
The truth is, as a manager, there’s a very good chance that you have no idea how much your people are truly capable of, so it’s impossible to accurately measure performance versus capacity—often difficult to even recognize that a problem exists. Moreover, your employees themselves very likely don’t know what they’re truly capable of.
A survey conducted by Development Dimensions International measured 2 groups of workers against each other: the first group said they were working for their best boss ever, the second for their worst boss ever. The study gauged each group’s productivity, with staggering results: 98% of workers in the first group were motivated to produce. The second group? Only 13%.
Rich Wellins, the head of research at DDI, explains that “the study’s findings suggest that many bosses, while trained in business and decision-making strategies, lack basic interpersonal skills,” according to a Wall Street Journal article covering the findings.
It’s important to note that the second group is not failing here. They’re simply operating at suboptimal capacity—with a difference in productivity that could equate to over $40,000 in total annual costs per employee, assuming an average salary of $50,000.
How much are people-management issues costing you?