10/15/2008

Fourth Quarter Playbook

The words I've been hearing lately through the manufacturing and service industries is "The Fourth Quarter Playbook is out". What does this mean to my business? What does this mean for those clients who's business is run with this fourth quarter playbook? Within the last three weeks, talk of the fourth quarter playbook has been in many conversations. Maybe it's the economy, maybe it's becoming standard practice to cut your spending at the end of the year. Either way, I'm going to look in to just that in this forum.

We first need to describe what the fourth quarter playbook is. It is a term used to stop spending. Business leaders and executives had the thought that stopping spending towards the end of the year would make the business appear more profitable. Unfortunately what this did, was just delay the cost of sales, maintenance, raw material purchases and other needed costs until the beginning of the next year. Once in this "hold off spending" cycle, a business will pay a costly penalty to try and rise above it. This cost saving method is not savings at all, but a way of pushing needed expenses to another fiscal quarter or year. increasing the budget for that year and allowing the management to slide on accountability for budgeting, sales and spending this year. This cycle is much like that of the "payday loan company". Once an employee takes a payday loan out, the person must sacrifice dearly for usually a full week to get back in the correct cycle with money and month. Businesses are not that different. They will need to work hard to get out of this cycle too. Unfortunately from executives to business managers, they usually end up padding budgets for the next year, if they even know how to budget anymore, pushing off other costs that are needed to run a profitable business and one that is operated with integrity. This is a phenomenon to falsely make the shareholders feel more stable. First used and referred to as "the fourth quartet playbook" in the 90's, but has grown to commonplace since. With the US economy in turmoil over the last few weeks, manufacturing and service businesses are not wanting to do anything to let either the board or the share holders feel vulnerable.

The problem with not investing in your employees and infrastructure now is that you get the best value for your dollar in the hard times. Spending a little to increase your efficiencies and quality now, will allow your business to grow and become world-class when the economy does turn around. It also provides a stable environment for the employees by showing them you are still investing in their future. Engaging them by way of caring for their stability.

Imagine hiring a Lean consultant to train five of your employees on how to identify waste and eliminate it within your business (remember waste is any function that you can't get paid for by your customer). Now these five employees spend the fourth quarter performing Kaizen projects every three weeks. That means that within the fourth quarter, when you usually cut all spending, these employees are performing Kaizen events saving anywhere from $5,000-100,000 in efficiencies for each of the four projects, increasing your engagement and getting the other employees to embrace the power of lean. Your initial $7-10,000 investment for Lean training and tools just earned you $20-400,000 every year, forever. You can't save that amount of money pushing off costs to the next quarter. That's a fourth quarter playbook that makes more sense.

In closing, The Fourth Quarter Playbook is essentially a practice used to artificially inflate bottom line results within businesses. Developing strategies for the end of year slow times or any slow time for that matter will help grow your business instead of taking away from it. Changing the way we look at and operate our businesses now will allow for reduced stress for our employees, assets and ourselves.

Using your most valuable assets to build your business and make your business steadfast against the economic woes of today is a smart decision. To learn more about this and other ways PNCG can help you and your business, please feel free to contact us. if you don't know about Lean or want to learn more outside of this blog, Google Lean Principles and see how Lean is transforming businesses globally. BACK