Do you have a cost-cutting or productivity-improvement mindset?

A Toronto hotel recently hired a woman in a new position as event manager. Her first assignment was to promote the lobby bar as a welcoming and happening place for guests as well as residents in the community. Eva found the bar cold and austere with its fluorescent lights and metal café tables. “I’m sure there are some things we can do right away to change the atmosphere,” she said. Her new boss agreed. “Just tell me what you need,” he replied, “and I’ll set a budget.”

The very first day on the job, Eva opened a cupboard and found it packed with votive candleholders, candles, table cloths, and small flower vases. “I was going to suggest we buy these,” she said as she pulled the items off the shelves, “but look what I found! Why aren’t these on the tables?” Her boss looked sheepish. “Money’s been tight,” he said. “By removing the candles and flowers we saved about $50 a night. Plus when we cut back staff, we were told there wasn’t enough time to fuss with candles and table cloths.”

What customer value are you removing when you cut costs?

This, my friends, illustrates the olive principle. Yes, you can cut costs by removing the “expensive” olives from a salad. And yes, you can save even more by removing the tomatoes, feta cheese, fresh basil, and so on. But before you’ve finished the cost-cutting exercise, your customer’s Mediterranean salad has turned into a bowl of lettuce. The olives alone don’t provide customer satisfaction, but they certainly add to the customer’s overall sense of value and experience.

I know how this happens because I’ve seen it too often. A business wants to do a better job of managing costs, but in the process, forgets the importance of good productivity measures. A productivity-improvement mindset serves a business much better than a cost-cutting one. You’ll creatively solve what you thought was a budget issue with a new approach for doing things smarter.

So unless your business is in a serious turnaround situation, consider these tips when someone tells you how you can save a few dollars:

• Don’t separate out single components or items (like the olives or candles!). Ask yourself, “How do these items together affect the total experience for our customers?”
• Maybe there’s one item you can cut back on, but know when to stop. Otherwise you create a slippery slope where all of a sudden you’ve removed everything that speaks of value.
• Be wary of promises of great savings that chase your customers away (e.g. bargain olives, fake flowers, plastic table clothes!). These rarely work and unfortunately, can be counter-productive.
• Manage productivity, not costs. For example, find a different supplier for the olives; work out an arrangement for olives in exchange for promoting the olive company. Or in the case of the hotel example, use flowers in season, and equip waiters with lighters so they can deal with the candles when they return to the tables to follow up with their customers.

By managing your productivity, cost reduction becomes a natural bonus. Before you know it, you’ve increased business.

Manage productivity, not costs

Wondering what happened at the hotel? A month later, my friend held the first event at the bar. She called the evening “Irish Kitchen Night” and brought in a Celtic band (she hired them at a discount in exchange for letting them sell CDs). Nothing changed on the menu, but every table was covered in the checkered cloths from the cupboard, lit candles, and single bright red carnations in the vases.

The place was so busy that it totally overwhelmed the staff (and for the first time in a long while the bar made a profit that evening)! It wasn’t the candles alone, the flowers, or the band—but together, the atmosphere was warm, friendly, and inviting. It was a total experience that said to customers, “Look at the value you’re getting when you spend an evening with us.” And at the end of evening, everyone asked, “Tell us when you’re doing this again!”