Profit Building Perry Ludy

Profit Building by Perry Ludy

Book Summary Review

"Profit Building: Cutting Costs Without Cutting People" by Perry J. Ludy is the latest book to be reviewed.

The book looks at the conundrum of how to get your employees involved in finding ways to cut costs and eliminate waste when they or their friends and colleagues may be victims of the implementation of the cost saving ideas.

From the top management position, cost reduction looks sensible. More jobs are protected by streamlining operations and being as efficient as possible but from the bottom, it looks like "turkeys voting for Christmas."

This book proposes a profit building process based on five steps:

1. Create a profit building team of 5 to 8 people from different departments and functions.
    
2. Prepare the team to ask challenging questions.
    
3. Brainstorm solutions.
    
4. Implement the action steps.
    
5. Review and follow up.

This very much puts the onus on the profit building team and by implication reduces the responsibility of the other employees to identify waste and inefficiency.

My Experience Of Special Teams

My experience of these special teams has not been favourable. Back in 1994 I was a director of an engineering company and we started a "world class manufacturing" project based on two special teams tasked with improving two particular divisions of the business.

Unfortunately this created two problems:

• An "Us v Them" attitude in the staff and the motives of some team members were less trusted than senior management.
   
• It paralysed regular management processes and continuous improvement. Everything had to go through the relevant team who had an "not invented here" problem.

I left during the project to start my own consultancy business but reports back indicated that the "world class manufacturing" process never resulted in any permanent improvement.

My first consultancy client had a strong Kaizen/continuous improvement program in operation where ad-hoc teams were encouraged to form and resolve problem issues. Using similar analysis techniques, these informal and short term teams were very successful and the whole process worked very well.

This combination of experience has shaped my views and as a result I have problems with the approach recommended by Perry Ludy in the Profit Building book.

Focus On Costs

The subtitle of the book emphasises the approach to profit building is based on reducing costs and the summary goes through plenty of questions to challenge the cost base of a business. This has the potential to make a useful checklist.

The book sets a difficult challenge of cutting costs without cutting people. It applies more to businesses with high purchase costs rather than those with high staff costs. This rules out many service sector businesses which are very people intensive.

There are only three ways to cut costs:

1. You reduce the purchase price.
    
2. You reduce the quantity you buy - this includes eliminating waste and even questioning whether the activity adds value and should be done at all.
    
3. You simplify or change the way the activity is performed so that it requires a different combination of inputs. For example make/buy decisions where you outsource something you do or you start doing something yourself that you have previously outsourced.

Brainstorming Questions

One idea I did pick up from the Profit Building book was to brainstorm the questions to ask rather than just brainstorming solutions to an already decided question.

I like this.

It helps challenge existing mindsets and areas of blindness.

You Can't Ignore The People Issue

It may be a worthy goal to cut costs without cutting people, but it imposes unnecessary restrictions on the cost reduction process.

If people are unproductive and inefficient, action needs to be taken and dancing around the issue in some form of political correctness won't produce an optimum solution. Sometimes difficult decisions need to be made.

Profit Building: The Scissors Approach

With so many manufacturing businesses closing in the UK as work is transferred to the low wage cost economies of China and India, I can't emphasise enough how important it is to maintain constant focus on costs.

I like the continuous improvement concept of continually identifying waste and finding better ways to perform necessary activities and I believe that the process needs to be built into the day-to-day management systems and procedures.

I also believe that profit building is a two sided problem. You always have the choice of:

1. Reducing costs.
    
2. Increasing revenue.

Profit building is like a pair of scissors. The aim is to widen the gap between the two blades so if new methods of operational efficiency are discovered, the business can:

1. Bank the gains by reducing staff numbers, perhaps avoiding lay-offs through a zero recruitment policy (although that creates "round pegs in square holes" with unhappy employees and higher ongoing costs).
    
2. Look at how that extra capacity can be filled by winning new business. The costs are already paid for so your prices can be keen. While you have to be careful about causing a price war, there may be opportunities to win business that would have otherwise moved offshore.

Conclusion on Profit Building by Perry Ludy

I have problems with the approach recommended in the Profit Building book but I welcome anything that encourages business managers to think about their cost base in a systematic way and then to take action to reduce costs.

I rate this a three star business book summary from BusinessSummaries. The summary is worth reading but I won't be buying the book.

You may be interested in top author and marketer, Mark Joyner and his 7 Day Business Turnaround Kit.

It has a strong bias toward businesses that can market information products on the Internet but that is probably the only way you can achieve a seven day turnaround.

If you like the idea of increasing your business skills and knowledge quickly and easily by reading summaries of the best business books, BusinessSummaries are highly recommended.