If you want to join a merchant ship and sail the sea at large
You’ll not have any trouble if you have a good discharge
Signed by the Board of Trade with everything exact
And then you’ll get your months advance according to the Act.
So haul boys your weather mainbrace and ease away your lee
Hoist jib and topsails lads and let the ship go free
Shout boys shout I tell you it’s a fact
There’s nothing done in Lime Juice ship contrary to the Act
Now when you join the ship me boys you’ll hear your articles read
They’ll tell you of your pork and beef your butter and your bread
Your coffee, tea and sugar boys your peas and beans exact
Your lime juice and your vinegar according to the Act
These are lyrics from an old sailor song called the Lime Juice Ship. I know this is a departure from my typical use of modern music, but bear with me. As usual there is a method to my madness.
For Father’s Day my children gave me a book of “useless facts.” I assume because they know how much I love boring them with stories about supposed randomness. I took the book on a recent vacation flight, and quickly read it from cover to cover. While it was a purely pleasure trip, my mind couldn’t help but think about the world of business while I amused myself reading utterly random factoids.
One of the stories in this book of useless facts was answering the question: “Why are the British referred to as limeys?” According to this book (and I have not done any independent research on this to confirm), it all has to do with scurvy and the British Navy. Apparently in the 17th to 18th centuries the greatest killer at sea was scurvy which is caused by the lack of ascorbic acid in the diet of a sailor. In 1753, a Scottish naval doctor, James Lind, recommend adding lemon juice, which contains ascorbic acid, to the sailors diet to prevent scurvy. Initially the British navy ignored the recommendation due to cost concerns, but by the late 1700s lemon juice was compulsory aboard British navy ships and scurvy ceased to be an issue. However, at some point in the 1800s the British navy switched to lower cost lime juice, only to see outbreaks of scurvy return to their ships. Turns out that limes have a lower content of ascorbic acid than lemons and thus were not as effective at fending off scurvy. Other countries stuck with higher cost lemons or even oranges and did not see the return of scurvy. Sailors from other countries, particularly the Americans and the Australians, poked fun at the British sailors by calling them “limeys.”
Like most people who have held a position within companies for more years than you care to admit, I have seen my share of business downturns – either firsthand, through experiences with business partners, anecdotally through IT peers and acquaintances, or reading business-related articles. These downturns may be result of worldwide, national or local economic problems; product relevance or reliability; price pressures; the poor execution of business plans; or a host of other reasons. Regardless of the driver, one of the most common reactions taken by the management team of the business is to cut costs.
Now don’t get me wrong, I love an ongoing strong dose of expense management. Building in a recurring examination of your business’s cost basis is a good thing. Businesses are dynamic; and employees at all levels of an organization should be evaluating and challenging business processes and costs associated with the business all the time. This leads to a business where the right people are doing the right things, following the right processes at the right times. This results in an efficient business operation, something that is key attribute of high performing companies. I like to think of this as “natural” expense management that happens as part of following strong fundamental business practices.
However, during business downturns, what I have seen and heard from others so many times is what I call “unnatural acts” of cost cutting. Much like some Royal Navy admiral requiring the use of limes instead of lemons to save a few British Pounds, CEOs and CFOs go to department heads requiring an arbitrary and immediate cost basis sacrifice – especially from departments that are seen as support functions or ones oddly enough that are focused on driving sales. While these actions can prop up financial performance in the short-term, they can also cause longer-term harm (perhaps not death like the actions of the British navy) to the business.
Ring, ring….”Hey VP of HR, this is your CFO calling on a Monday morning. Look I know our overall employee count is forecasted to remain flat for the coming 12 months, but I need you to scale back your HR department cost basis by 10% to help make up for the recent 5% price decrease we did on our flagship product. No rush, just let me know Wednesday what steps you are going to execute on Friday to achieve the target.”
Knock, knock….”Hey CMO, this is your CEO stopping by to talk about a problem. As you know, our sales numbers are trending down and the full year forecast is bleak. We just can’t seem to get sustained traction with our new product line. Our customers just don’t seem to be aware of all the great features we introduced with it. Let me know by the end of the week how we take $2 million out of product marketing for the remainder of the year.”
These are completely made up interactions to make a point about the short-term decisions that occur all too often in businesses today. The focus on beating financial performance over an arbitrary 90 day reporting period compared to a year ago seems to be the norm in many companies today, especially those that are publicly traded. This can result in executing actions that are not in the best long-term interest of any business stakeholders. It seems the notion of focusing on long-term sustainability of a business that benefits all the stakeholders in a business – investors, employees, customers, suppliers, communities and beyond – is a forgotten idea.
Call me crazy, but I for one think we need to resurface that idea.