Are cash flow problems draining your business revenue?
It all depends on which world you’re in…
What’s that you say? That doesn’t make sense to you?
Well, it might if you think about it a little. When we experience cash shortages, our behavior changes, and sometimes it’s not always for the better.
Let me introduce you to two different worlds:
- The Cost World
- The Throughput World
In the Cost World, we are very focused on costs. We look at every single expense and try to reduce it. That’s not a bad thing unless it affects the Throughput World.
In the Throughput World, we are paying attention to the speed/pace of the business, and amount of money we are making (yes, that always ends up as cash in the bank).
Well, often these two worlds collide and are in conflict with each other. So which one wins the battle? The one we pay the most attention to. And if we take actions to cut expenses that reduce our throughput, we might end up in a worse place than where we started.
How does that happen? Great question!! Let’s say you decide you have idle capacity in one functional area. You might look to reduce expenses in that area. Most of the time, those expenses tend to be people. So you reduce your headcount and lay off a couple of people. Sounds good so far? Maybe… But what happens if that change reduces the capacity of that function, and causes the overall throughput of the company to drop? In other words, you might have just created a bottleneck in your operations that constrains throughput (output).
Additionally, how might this action affect the other employees? What message does this send? Lay-offs tend to have a deflating effect on employee motivation. And loss of motivation can further affect throughput.
So in the name of doing something good, you just deflated your throughput, or cash flow.
Hmmm… Is there a better way of thinking? Of course, silly!! Otherwise I wouldn’t have written this article!