The other day, I
was having an interesting discussion with my son, who is crazy about cricket.
He told me that when he grows up, he would score lots of runs and win the
matches.
This discussion
happened just around the time when Australia and South Africa were playing test
match and Australia got out for one of their lowest scores to lose the match. I
remembered the record breaking ODI between these two countries few years back. Australia
had piled up a massive score of 434 runs in 50 overs and one felt they would
win the match with a huge margin. South Africa had different thoughts.
Australia still lost the match. 434 runs in 50 overs was a world record, but it
remained a record only for the next 3 hours.
And how can we
forget the classic 1983 cricket world cup final that India won defending only
183 runs?
It is not about
the runs scored alone, it is also about runs conceded.
As experts would
remind us, cricket matches are never won by conceding lots of runs. In the end,
the team wins has to score and save more runs than the other.
In business too,
not just the revenue, the costs are also equally important. A business makes
profits only if it is able to keep the costs lower than the revenue. As
Management Guru Peter Drucker would put it; “profits are never in the
management’s control, it’s only the costs.” Or as Benjamin Franklin would put
it, “A small leak sinks the boat.” So often, the focus is entirely on revenue.
The costs sometimes get out of hand. It is ok in good times, but costs are the
business’ enemy in lean times. Many costs are not visible immediately and
sometimes immeasurable, especially things like wastage of material and time.
A businessperson
also must understand that some costs are inevitable to run the business,
whereas some are avoidable. It is the discretion of the top management that
helps a business incur the relevant costs and avoid the unnecessary ones. In
good times, the costs get out of control and in lean times, one has seen the
pendulum swing to the other extreme. Costs are cut without due thought. It is
the number of items where costs are cut rather than the actual cost cutting –
that becomes important.
There is also a
difference between costs and investments. The investments would not yield
immediate results, but should result in long-term benefits for the business.
Very often, the management tends to cut down on the long-term investments in
the name of cost cutting. This results into immediate cost saving, but over
time, it hurts business growth.
Be careful. Cost
cutting is essential, not as a reaction to lean times, but as a culture.
Wish you all
Merry Christmas.
-
Amit Trivedi
The
author runs Karmayog Knowledge Academy. The views expressed are his personal
views. He can be reached at amit@karmayog-knowledge.com.
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