Articles
9 February 2012

Small Ideas, Big Results

How one Company Saved $2.2M by Listening to Employees

by Larry Myler

09 February 2012—

 The recession has affected every industry, but the hospitality industry has been hit especially hard. Consumers and businesses alike have scaled back discretionary spending on high-end retreats and getaways. With people keeping their money as close as possible to the vest, every hotel is experiencing reductions in top-line revenue. So what can these businesses do to stay out of the red? Let’s consider the case study of a beautiful, upscale resort in Utah. This is a real story about a genuine company, but to protect our client’s privacy, we’ll call it the “Hotel California.”

 

Behind the Scenes

In response to the bad economy, Hotel California enacted a pay freeze, which sunk employee morale. The resort employs approximately 300 people. Even in a time of high unemployment, attracting sufficient talent can be challenging, considering the resort’s isolated mountain location. The employees are a valuable asset to the company—the hotel couldn’t meet its high standard of service without them. Hotel California has spent considerable time and money training its employees to be the best the hospitality industry has to offer, so it can’t afford to lose them. The hotel’s biggest fear is that the pay freeze may drive valuable employees away. 

Hotel California is reasonably confident that it will survive the downturn and regain its former profitability when the economy strengthens. But until that happens, the company needs to retain its talented staff and find other means of reducing costs and generating profits. Upper management believes it has hired good people, but any increase to salaries, benefits packages and other job perks doesn’t align with the goal of reducing overall costs. Meanwhile, employee morale was getting lower and lower. 

Is it possible for a company to freeze employee compensation, reduce overall costs and keep employees smiling on the job? 

Hotel California management recently asked our consulting firm, More or Less, Inc., this question. We told them we believed—in fact we knew, without conducting a single interview—that the company could turn this dreary situation into one that benefited employees and the overall company.  

 

Worth their Weight

Employees are a company’s greatest assets. Every employee should bring financial value to the company. At Hotel California, employees held the keys to finding hidden profits and keeping the company alive, and ultimately thriving—but neither the employees nor management knew it. 

Hotel California’s employees ranging from the maintenance crew to the management team needed to understand that everyone plays a role in building company success. Similar to many companies, Hotel California’s employees realized that the sales staff created profit by providing top-line revenue. But most employees were not aware of the many ways they could also contribute to the organization’s bottom line. 

We taught Hotel California workers that three things are fundamentally clear: 

 

1. Every employee—yes, every single one of them—must produce more financial value to the company than it costs it to retain them. 

 

2. We taught them that to be more profitable, a company can either increase top-line revenue (basically, increase sales) or reduce expenses. 

 

3. Here’s the biggest secret we told the employees: the money produced through cost reductions is actually more valuable to your company than the revenue produced through ordinary sales. Found, or unexpected, dollars go directly to bottom-line profit, while sales dollars are loaded with overhead such as commissions, cost of goods sold, and general and administrative expenses. In other words, the hotel’s employees (even the landscapers and wait staff) can generate one-hundred-cent dollars, while the salespeople are generating five-cent dollars (assuming net profit of 5 percent). If a salesperson makes quota, it’s expected; but if an employee can discover hidden money, it’s a windfall.

 

Listen, Listen, Listen

Employees often have cost-savings ideas, if only the management team will listen. At Hotel California, employees were lined up out the door with cost-savings ideas for management. For example, one legal assistant noted that the company’s beautiful color signature at the bottom of every e-mail meant that every e-mail she printed and filed (and in the legal department, that’s pretty much all of them) required at least two pages and expensive full color ink. For e-mail strings between executives, the logo illustration could actually appear two, three or even 10 times in the finished document she would need to print out and file. By simply eliminating the logo for intra-company e-mail, the hotel could save several thousand dollars in paper and color ink every year. The equivalent level of sales it would take to equal the profit the legal assistant’s idea produced equated to a savings of $25,000 a year in ink, paper and unnecessary office supplies. This savings of $25,000 is pure profit—and in a company with a 5 percent profit margin, it would take $500,000 in sales to produce that same profit.

  Once employees began to realize the financial impact they could have for their company, Hotel California, they became excited. Of their own volition, employees informed management of more simple savings ideas. For example, a long-standing benefit was company-provided meals. Employees informed management that the benefit wasn’t really needed and that they should consider eliminating the perk. That reduction could save the company $96,000 a year, a sales equivalence of $1.92 million in annual top-line revenue. 

Other ideas included planting perennial flowers instead of annuals and using a more environmentally friendly and inexpensive cleaning fluid. In all, Hotel California found many solutions to its profitability problems directly from its own employees. Employee suggestions resulted in $2.2 million in cost savings, the equivalent profitability of $44 million in additional sales.  

 

The Bottom Line

Every company can engage its existing employees, especially during today’s times when it’s difficult or even impossible to increase top-line sales. 

Hotel California has yet to lift the salary freeze as it works to vet and enact the ideas its employees generated. But, no mission-critical positions have been eliminated. The hotel is operating more viably than before, and employee morale is clearly on fire. The employees have not only been heard, they have played a meaningful role in determining their company’s future, which is now on track for substantially more profit in 2010 and beyond, regardless of when the economy improves. At this rate, the future of Hotel California—and its employees—has become significantly brighter. Today, management is considering a structure to return a portion of the new savings to its 300 employees as a bonus. 

The cost savings a company in the hospitality industry can find is particularly dramatic. But no matter the industry, it’s essential that all companies find new ways to cut costs and increase revenues without sacrificing their valuable staff, especially now.  

Emphasizing profitability—with every member of the company engaged and participating—can ensure an organization’s survival, as the Hotel California recently learned.   

 

Strategic Breakdown 

How your company can put this case study to work. 

 

Situation

 

Hotel California experienced declining visits and, therefore, declining revenues. Management decided to enact a pay freeze to counter declining revenue.

 

Problem

 

Employee morale is low and hotel management fears many will leave the company. The hotel must continue cutting costs while ensuring employee morale is high.

 

Goals

 

Reduce costs and keep employee morale high.

 

Plan

 

Garner ideas from employees regarding how the company can cut costs. Employees may have a variety of cost-savings ideas that management does not. Listening to those ideas and enacting them (when realistic) will lead to savings. By listening to employees, management demonstrates employee importance to the company; thus, employees are more likely to feel valued and morale is increased.

 

Results

 

By enacting seemingly simple ideas, such as planting perennial flowers instead of annuals, Hotel California saw $2.2 million in cost savings.

 

Lessons

 

Your employees likely have cost-savings ideas that are a potential gold mine. Listen to your employees’ suggestions, enact them when feasible, and see costs reduced and morale increased. 

 

 

Larry Myler is the author of “Indispensable By Monday” (Wiley, Jan. 2010). Additional examples of recent company successes can be found at www.moreorlessinc.com and in the book “Indispensable by Monday”—in fact, some companies are making it required reading for their staff. 

 


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