Many, perhaps most, business managers make an effort to cut operating costs in the belief that doing so will maximise profits. And certainly no one could argue with an approach of eliminating needless costs. But over the years we have noticed that a contributing factor to the failure of business can be a failure to properly resource the business.
Often the under resourcing may be marginal, say by only 5%, and typically that 5% impacts on the services that customers rely on. For example an accountant might under resource on accounting staff numbers by providing 5% less staff that required, or he or she might employ staff slightly less qualified than needed to efficiently handle client’s problems. Retailers and wholesalers might carry 5% less stock than that which meets the customers’ needs. A service entity might have5 % less servicemen on the road leading to delays in responding to service calls.
A simple analysis of this under resourcing might conclude that the business is willing to risk customers being only 95% satisfied, in return for the costs savings achieved. But that simple analysis would be wrong because, despite the general under resourcing, some customers will be properly serviced, some may be over serviced and some resources will be lost by inefficiencies brought on by competing demands for the limited resources. The end result, in our experience, will be that a small but significant percentage of customers will be greatly under resourced and dissatisfied and accordingly less likely to provide repeat business or recommend the business services to others. A downward spiral is begun.
Compare the under resourced scenario to one where the business is properly resourced, or even over resourced by the same 5% margin. Now all customers are satisfied and will gladly re order, and recommend the business services to others. The business is able to cope with peaks in demand, there is less price resistance and turnover increases leading to much higher and more sustainable profits than would be the case when under resourcing occurs.
On occasions we have seen that a failed business has had a big marketing spend and under resourcing. Clearly this does not make sense as bringing in new customers will only exacerbate the position. Spending on marketing is necessary for all businesses but not at the expense of under resourcing.