Reduce the Units of Input Not Producing Output
Reduce units of Input (I) available but not producing Intermediate Cost Drivers
(ICDs). This action makes Input levels more directly variable with the quantity of the ICD by reducing the amount of the available Input that is wasted or idle. For example, an employee (I) might produce one subassembly (ICD) per day. During that day, the employee spends a total of one hour waiting for parts for the subassembly. If the Company could eliminate that one lost hour of the employee's work day by providing parts in a more timely manner, the Company could reduce the number of employees (I) needed to produce the same subassembly (ICD) by 1/8th.
A. Assist Input in increasing ICDs.
Recognize efficiency. When people understand that the company is measuring efficiency, they pay more attention to what is measured.
Pay according to varying levels of efficiency: Pay for company performance:
|1||2844||1995||Colgate-Palmolive consolidated its ad spending to work just with Young & Rubicam. But Y&R will now be paid based in part on how well its ads work. Performance measures include a subjective evaluation of creativity, sales results based on market-share growth, and the mileage it gets from the worldwide ad budget.|
|2||3312||2004||Integrated producers are trying to operate more like non-union mini mill operators such as Steel Dynamics and Nucor. Both these firms stayed profitable in the late 1990s as imports soared. One reason for their success is a compensation program that is weighted towards incentives. When business is great the employees share in the good times; when it's slow, pay levels reflect that. Employees get paid based on prime quality steel produced, typically over 100% above the base pay is paid in bonuses.|
|3||3571||1990||IBM built into its bonus formula sales growth relative to its industry. And, for some executives, bonuses depend on whether customers rate them as the best.|
|4||8361||1996||Sterling's cost of capital traditionally has been one of the lowest of any player in the industry and its management compensation is tied to the performance of the stock price.|
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