I did some consultancy work with a business that had been running for over a century. They had grown to be an SME and exported to the EU.
The Owners/Joint MDs were aware of increasing price competition from the eastern reaches of the EU. They had invested substantial sums in processes, capital equipment and their people costs were lower.
My Client had outgrown their site and were having problems with workflow.
I started by investigating the workflow, not quite stopwatch in hand, but observing the flow.
I came across an operation that had a 50% overhead in time. The operation took half the time to organize as it did to carry it out.
It was clear to me this was symptomatic. The solution was simple and would incur a small cost.
When I proposed the change to the processes, the majority Owner believed as it was an overhead cost, it didn’t matter.
Since then, I have seen the same mentality at work in the US, China and elsewhere in the UK.
This blindness to “overhead” costs applies to all types of organization. Service businesses suffer dreadfully as separating “overhead” from “direct” cost is a matter of definition!
The important thing is that it is all cash! It isn’t free money because you call it an overhead.
The cash spent by your business comes from somewhere. It either comes from your bank or your customer’s bank.
It is a major factor in your competitive position and must be managed properly.
I’m sure this doesn’t apply to your organization. Does it?