Running on Operating Principles
By: You can imagine the internal reaction at US Airways when someone suggested eliminating free pretzels during flights. At the time, 2005, it shaved $1 million a year out of operating costs.Northwest Airlines decided to do the same.
Talk about quick change. It was only part of a long, thorough, and at times painful restructuring of airline industry operations that made profitability achievable again.
How about electronic account statements, or a smaller cap on the ubiquitous water bottle?
Or the incoming CEO of a major multi-national who sent out a company-wide memo that printer paper be used on both sides?
Cutting operating costs can become an MO, even a mantra. In some cases, it becomes a survival strategy, as any airline industry executive can attest, but it's far subtler than raising prices.
And for years now, companies have been cutting costs, raising earnings per share. In other words, it's the bottom line, stupid.
CEOs have made names for themselves. Mark Hurd, first at NCRthen Hewlett Packard, (even though that reputation might be temporarily colored by expense account irregularities at the latter.)
Caesars Entertainment this summer awarded bonuses to a group of senior executives, including CEO and Chairman Gary Loveman, for hitting cost-cutting targets.
Quick change, small change — put together they can mean restructuring.
Few remember that cell phone leader Nokia had a forestry business as well two other units as recently as 25 years ago, or that IBMsold its PC manufacturing business to China's Lenovoalmost eight years ago.
Some restructurings can be misguided, for which companies pay dearly. Enron's move from distributing and transmitting electricity and natural gas to complex derivatives and commodities trading led to its eventual bankruptcy.
Vivendiof France undertook an aggressive diversification strategy in the late 1990s that took it to the brink of bankruptcy until the firm restructured debt and sold off key assets.
CNBC's special report,"Quick Changes for Business," isn't about success and failure, as much as it is about the bottom line and how operational changes trickle down.
In our launch, we'll tell you about consultants, hedgingand telecommuting, but there's more to come. Check this space every week for a new entry on the ways to grow the bottom line.