Double Your Profits In Six Months Or Less, by Robert Fifer

This book was recommended to me by a friend, who applied the principles to his family business upon becoming CEO and was indeed able to double profits.

Author Robert Fifer (born in 1956) is a retired business consultant. His book Double your profits in six months or less, published in 1993, became required reading for managers of several Fortune 500 companies. It is reported that Jack Welch, former CEO of GE and considered to be one of the most efficient CEOs of all times, ordered 125 copies for his top managers, who in turn bought more than 2,000 copies for their staff (see Robert Fifer Wikipedia profile).

Below are the key lessons from the book:

Leadership:

Doubling profits requires leaders who are focused, consistent, tough and fair, and willing to stretch themselves and the organization to be different and better than the status quo or the average manager.

Mission – the driving goal should be one simple thing, to be the best:

• Nothing motives employees more while producing better bottom-line results.
• “Best” means never settling for the status quo.
  • Create a culture that says “the best” means always thinking, always striving, always re-making yourself to be better.
  • Never be satisfied as long as there’s something that has not been achieved.
• “Best” means the organization is a meritocracy.
  • This requires managers to take tough decisions that affect people and tell these people to their faces.
  • Rewards (financial, career advancement, psychic) will be allocated based on performance (not seniority or likeability).
  • There will be wide spreads in rewards among different people.
  • Have no sense of guilt: better to have the underperformers complain (meritocracy) than the best-performers (seniority system).
  • Communicate all the time that the company is a meritocracy (when hiring new employees and as you run the business day-to-day).
  • Define how performance will be measured, what rewards will accrue to what levels of performance.
  • Deliver results (good and bad) that are consistent with these terms (keep your promises).
  • If you take dramatic action (promoting, paying, firing people based on performance), people will focus their actions fast on improving bottom line.
• “Best” means profit is the most accurate measure whether we truly are the best. Profit measures:
  • How customers value our products.
  • How efficiently we operate to deliver value to our customers.

Don’t apologize for focusing on profits

Employees will not respond to “We’re here to make shareholders rich”. They will respond to “We’re here to be the best (each of us and all of us together), to creatively and vigorously strive to improve and achieve in all ways possible, to reward each of us commensurate with our own performance, and to make it all possible by maximizing the bottom line”.

Focus on results, not processes:

• Any investment in process must be rigorously questioned: Assuming the concept makes sense, do we really need a formal, extensive process or can it be done in a quicker, more direct, more common-sense way?
• Save people’s time:
  • Never write a memo if telling someone will do.
  • Never call a meeting if a memo will do.
  • Never call a 4-hour meeting if a 1-hour meeting will do.
  • Never have two meetings if one will do.
  • Never set up a process if two meetings will do.
• Companies often over-invest in processes because:
  • The leader doesn’t credibly communicate that results are the only thing we are here for.
  • It is easier for managers to show they have nice and shiny processes than to prove that they are truly making money for the business.

Divide costs into strategic and non-strategic costs:

• Split all cost reports in two categories: “strategic” and “non-strategic”.
  • Strategic costs: things that clearly bring in business and improve bottom line (e.g. salespeople, advertising if it’s working, sellable R&D).
  • Non-strategic costs: all other costs, that don’t bring more business (administrative costs: managers, clerical support, rent or real estate cost, consultants, lawyers, accountants, computers, office supplies, etc.).
• The CEO needs to ensure that the firm:
  • Will outspend our competitors for strategic costs, in good and bad times:
    • Distinguish selling, marketing, R&D costs that truly enhance topline and bottom line from those that are wasteful and unlikely to pay off.
  • Will ruthlessly cut non-strategic costs to the bone
    • Assume every non-strategic cost can be eliminated unless proven otherwise.
    • Place the burden of proof on justifying costs, not on eliminating them.

Don’t over quantify things:

• No business ever made a penny on a forecast.
• Optimizing profits is what the business is here for, not predicting them.
• Eliminate 80% of the people resources dedicated to forecasting and number-crunching and spend that time on making money.
• When you can’t make your mind on a decision, give yourself two seconds to decide.
• It is better to be approximately right than exactly wrong.

Don’t over-delegate, and don’t under-delegate:

Superb managers study their business in general but manage in detail, the important details.

Maximizing customer satisfaction leads to bankruptcy:

• Provide the elements of differentiation that the customer is willing to pay for, not those that the customer is not willing to pay for.
• You are not doing the customers a favor by building unwanted differentiation and costs that raise the price.
• Create a culture of “what is the customer willing to pay for”:
  • Most people are trained to add differentiation.
  • Should also focus on eliminating costly elements of differentiation that the customer is not or no longer willing to pay for.
• Separate the differentiation the customer is willing to pay for from “nice to have but I won’t pay for it”.

Divide time between strategic and non-strategic time:

• “Strategic time” is anything you do that produces profits.
• “Non-strategic time” is time that is busy and process-related but does not produce profits.
• The message of the leader to the organization should be the following:
  • “We are a great company, an incredibly exciting place to be.”
  • “We are here to make a profit.”
  • “We have so much more yet to accomplish, so much uncaptured opportunity.”
  • “Every dollar and minute will focus on realizing our potential and making a profit.”
  • “Every other (non-strategic) dollar or minute will be ruthlessly stamped out.”

Sense of urgency:

• CEOs must divide their day into three lists: (1) Anything that brings in new business (i.e. raises revenue) or eliminates costs: all items on this list should be done before noon. (2) Things to do to maintain existing business or keep existing system running: get this list done by mid-afternoon. (3) Things that someone expects me to do but add no value to the bottom line: get this list done once the first two are done.
• Always set deadlines in the very near term: Tight deadlines will eliminate non-value producing tasks from people’s schedule
• Always keep resources very scarce.
• Never call a meeting to discuss, call a meeting only to decide.

Translate culture into action:

Every cost is up for grabs:

• See every cost as a necessary evil at best.
• No cost should be absolutely sacred.
• Don’t assume anything has to be done the way it is.
• Always ask: If I eliminated this cost, would I really lose revenue or profits? How and where?
• If you can’t figure out how and where, then you don’t need the cost.

Cut costs first, ask questions later:

• It is a mistake to say: “Let’s not cut cost A unless we’re sure it’s the right decision”.
• It should be “Let’s not keep spending cost A unless we’re sure we need that cost”.
• If you do make a mistake, you can add the cost back.
• Spend too much and that money is gone forever.

Set arbitrary non-negotiable budgets:

• For office supplies, set a budget equal to 60% of previous expenditures “That’s all the money there is, that’s all the checks we can write, so don’t exceed the budget”.
• Don’t ask the managers what they can cut and use that input as a budget.

Make them come ask the boss:

• Announce that anyone wanting to spend money in that area has to contact you first to ask you for your permission.
• Make sure the process is onerous (not a simple form to fill).
• Be somewhat intimidating.
• Always scrutinize requests critically and disallow as many as possible.
• Most people will be discouraged.

No cost is too small to worry about:

Show your employees that you care about saving money on a $10 item and they will look for savings on larger items.

Don’t worry, they will respect you:

• Don’t be afraid to take an aggressive approach to cost-cutting.
• Toughness plus competence leads to respect.
• Toughness plus mediocrity leads to resentment.

Employees are much more adaptable than you realize:

• People often say “you can’t possibly expect such employee to live with that”.
• Six months after the change is implemented, no one can remember the way it was before.
• Drastic changes become routine with the passage of a short period of time.
• Money is freed up for more important expenditures, including employees’ salaries.

Start with the most painless place – suppliers:

• If purchased goods and services equal 50% of your total cost and you realize savings of only 8% you’ve added 4 margin points to your bottom line.
• Ask what % of your cost is manufacturing and what % is purchasing.

Never let your purchasing person negotiate price:

• The worst person to negotiate price with your suppliers is your purchasing person.
• They talk to suppliers all the time, know them well, etc.
• You need a new way to force the purchaser to squeeze the supplier as much as possible.

You need a bad guy:

• The role of the bad guy is to scrutinize the cost of each purchased item (starting with the biggest amounts of money first) and issue tough arbitrary price constraints which the purchaser reluctantly relays to the supplier.
• Empower the negotiator to accept concessions but not to give them.

Declare freezes and cuts:

• Send a letter to all of your suppliers stating that times are tough and declare an across-the-board 3% reduction.
• Make sure the letter is from someone high up and intimidating, preferably the CEO.

Go to bid, frequently:

• For the largest 50 items you buy, when was the last time you put each out to competitive bid?
• Announce to your suppliers that every price increase triggers an automatic, serious competitive bid.
• For every important item, and at least once once a year, either conduct a truly competitive, aggressive price bid or just tell your suppliers that you’re doing it.

When suppliers say no, hit them again and again:

• “No” from a supplier rarely means “no”, it just means “I’d rather not”.
• The person at the supplier you are negotiating with is a salesperson, and salespeople want to make the sale and care less about price.
• Make them truly believe that the sale depends on lowering the price.

Budget 15% savings for purchased products, and 30% for purchased services:

• For services 30% savings is achievable: your suppliers’ fixed costs are often high, and any incremental business at almost any price contributes to profits.
• For many products, 15% savings or more are achievable.

Find out what your competitors pay:

• Find out who they buy from and what they pay.
• Go to your competitors’ suppliers and ask for the same deal.
• Or share the data with your own suppliers: they will usually match the lower price immediately.

Cut your use of purchased goods and services:

• Does anyone aggressively control:
  • Your use of office supplies?
  • Your purchased of computer hardware, software and services
  • Waste in your plant?
  • Your use of outside consultants: engineering consultants, personnel consultants, management consultants?
• Does everyone use express delivery services whether they truly need them or not?

Computers:

• Why do we need to spend the money on upgrades?
  • If someone tells you it saves 5 minutes, calculate the cost in terms of salary and calculate the payback.
  • Rarely anyone quantifies the supposed productivity gains.
• Put an immediate freeze on all PC purchases.

R&D:

• Scientists know science, but don’t know management or how to make a profit.
• Scrutinize each category of expenditures within R&D.
• Do not let the scientists or engineers talk science with you: if they can’t explain the value of their potential breakthrough in layman’s terms, how are your salespeople ever going to sell it?
• Ask your R&D people to divide their projects and expenses into 5 categories:
  • 1) Pure, basic R&D.
  • 2) New product R&D.
  • 3) Improvements to existing products.
  • 4) Process R&D, i.e. to lower the cost of manufacturing.
  • 5) Customer R&D, i.e. to tailor products to customers’ needs.
• Spend a lot more on category 5 and 4 than on category 1.
• Is your R&D profit oriented?
  • Who gets rewarded (promotion, pictures in internal newsletter): the engineer that makes a scientific breakthrough or the one who refines your process to reduce cost per product?
  • How well does your R&D or engineering organization transfer technology from one part of the company to the other?
  • What is your technology mission statement: to advance technology or to make money in customer-oriented and cost-saving ways?

Everyday expense items:

• First-class travel: Outlaw it for everyone, including yourself.
• Other travel: Make sure people really need to go where they’re going.
• Expense sheets: Review them every month.
• Furniture: Freeze all expenses on furniture.
• Office supplies: Reduce budget by 40%.
• Copiers and office equipment: Do you really need as many copiers?
• Maintenance contracts: cancel or don’t renew all your maintenance contracts on copiers, PCs and office equipment; insure only bug, devastating risks.
• Subscriptions: Do you really need all these magazines? Can’t people share?
• Telephones:
  • Downgrade your phone equipment.
  • Publicize a policy outlawing long-distance personal calls.
  • Spot check phone bills and when you notice a violation, issue a stern memo saying the next violation will result in a serious penalty.
• Contracts with suppliers: never sign one unless you must.

Office space:

• Choose a lower-cost suburban location.
• Double or triple up people whenever possible.
• Eliminate unused airy space.

Give up your own office:

Shows you are serious about cost reduction.

Sign all the checks yourself:

You’ll be amazed at the number of unnecessary hidden expenses.

Capex:

• Capital (plant, property, equipment) are real costs and need to be managed even more vigilantly than any expense item.
• Scrutinize your capital budget intensely.

Accounts payable:

• Extend your payables.
• Never pay a bill until the supplier asks for it at least twice.

Deplete inventory:

Make sure before you order an item that you’ve got your inventory running as low as it possibly can.

If you never fire an employee, you can’t have an excellent business:

• Need for a meritocracy to produce an excellent organization and excellent results.
• If you hire right, train well and know how to motivate, you will not need to fire people often.
• When you do and it is justified, everyone else will step up their performance.

Keep human resources scarce:

• When part of the organization asks for another person, say no.
• When they ask again, say no.
• When they’re virtually screaming that added resources are needed, investigate.
• A truly busy employee is forced to prioritize and get things done efficiently.
• The only way to promote efficiency and eliminate unnecessary work is to keep human resources scarce.

Setting salaries:

• Pay generously, so people feel they share in the benefit of creating a highly profitable business.
• For groups of employees who have a direct impact on bottom line, average pay should be far more generous than in other companies.
• For other groups, you should be more generous than most, but no need to be “off the map”.
• Within any level of employees, there must be wide disparities in salary tied to demonstrable differences in performance and contribution to the bottom line.
• If someone truly critical demands more, give in only rarely and only if truly justified.
• Message:
  • We believe in profits and efficiency, not waste.
  • We believe in hard work, but not long hours.
  • We believe in meritocracy (good reward if you deserve it, not if you don’t).
  • We’ll get rid of unnecessary perks, but we’ll pay you very well.

Benefits:

• Many employees discount the value of benefits and prefer hard cash.
• Pay good salaries and keep benefits to those few that employees truly value.

Never give regular bonuses:

• Year-end bonuses who become automatic and non-meritorious become expected and therefore discounted by employees.
• Bonuses are most effective when they are irregular and ad hoc.

Titles are cheap:

If you don’t want to give someone a raise, give them a fancier title.

Emergency or remedial headcount reduction:

Almost all white-collar companies can eliminate one person in four without any reduction in worthwhile output.

Eliminate most of your administrators and managers:

• There are 2 types of people:
  • People who do productive work.
  • Managers or administrators.
• Eliminate as many of the second category as possible: a couple of good ones will suffice.
• Every manager should be one of his own direct reports.

Be most ruthless with your internal staff functions:

There are far more people than needed in legal, HR, accounting, finance, IT, R&D and engineering in most companies.

Close the outside contractor loophole:

• When you say they will have 16 people, you mean 16 people not 16 people + 2 temps + 3 consultants + 2 part-time outside contractors.
• Is what the consultants are doing truly contributing to the bottom line or are they merely confidants and political allies?

Change the day-to-day habits of your organization:

• Discourage typing: memos or notes should be handwritten. It will result in shorter, more to the point memos.

Stop the paper flow:

• 75% of internal reports are a waste of time and money.
• Misplaced desire for precision: decisions should be based on instinct, judgment, and rough numbers.
• Actionable level of accuracy: if you’re not sure the number is 10 or 12, ask yourself if you would do anything differently if you knew it was 10 or 12?

Streamline your meetings:

• Make your decisions with as few people as possible in the room; never invite people just to be polite or out of respect for their titles.
• Keep your meetings very short: 5 minutes is often sufficient to make a decision; 30 minutes almost always is.
• Never call a meeting to discuss: only call a meeting to decide.

Stop off-site meetings:

• Rarely necessary.
• Rarely benefit morale as much as claimed: people prefer to be home with their families.

Last cost-cutting step: do it all over again:

• After a few months, people will adjust their expectations.
• That’s when its time to go through the whole list again.

I hope you have enjoyed reading this article! If so, remember to order your copy of Robert Fifer’s book using the following link:

Double your profits in six months or less