Sunday, October 28, 2018

The Twinkie Diet of Management

The Twinkie Diet of Management
by Bryan Neva and Allen Laudenslager

In 2010, Dr. Mark Haub, a Professor of Human Nutrition at Kansas State University, tried to show his students that pure caloric intake is the only thing that mattered for weight loss. So for ten weeks Dr. Haub only ate sugary convenience store snacks like Twinkies, Ding Dongs, Ho Hos, Nutty Bars, and Powdered Donuts, but he limited his daily caloric intake to just 1800 calories a day. The results, you guessed it, he actually lost 27 pounds, his Body Mass Index (BMI) dropped from 29 to 25, his bad cholesterol (LDL) dropped 20 percent, his good cholesterol (HDL) increased 20 percent, and his triglycerides (fat in the blood) decreased 39 percent! Those are jaw-dropping results. 

However, Jackson Blatner, a Dietitian and Spokeswoman for the American Dietetic Association (ADA), does not recommend The Twinkie Diet. She said, "It's a great reminder for weight loss that calories count...[But] there are things we can't measure...How much does that affect the risk for cancer? We can't measure how diet changes affect our health." And of course, if you have diabetes, eating too much sugar like in The Twinkie Diet can't be good for your blood sugar not to mention the lack of nutrition. Even Dr. Haub knew The Twinkie Diet wasn't nutritious so he supplemented his diet with a multivitamin, a protein shake, and salad. 

The whole point of The Twinking Diet was to show that only the number of calories counted in weight loss (calories in minus calories out). If you have a caloric deficit (regardless of what you eat), you'll lose weight and vice versa. In much the same way in business, only the margin counts in profitability (revenue in minus expenses out). If you have a revenue deficit, you'll lose money and vice versa.

In much the same way that eating just Twinkies helped Dr. Haub drop 27 pounds and the other health improvements he documented, those management quick fixes can show impressive short-term results. But the ADA's concerns about the increased long-term health risks parallels the long-term risks from short-term management decisions.

One clear and obvious example might be cutting employees during a business downturn. Over the last 20 years, layoffs seem to have become the “immediate action” response to any economic slow down. Just like the Twinkie Diet, the idea of cutting expenditures tastes good and shows a real, and immediate change. But just like the Twinkie Diet the long-term effects can be unclear and unhealthy. Layoffs have to be carefully crafted or you can decimate your workforce and devastate morale.

Some companies do an across the board percentage cut. Every department has to cut some arbitrary percentage of employees. While you might be able to cut 3% of the purchasing department since you are buying fewer raw materials, can you really cut 3% of your maintenance staff without risking the future expense of replacing worn out equipment or facilities? Obviously some businesses could idle equipment with little risk of damage and others would have to carefully craft a storage plan.

With many businesses there are subtleties that take an employee time to learn. This is called "institutional knowledge." One example might be in the building trades. Contractors not only need to know how to build a home, they also need to know the ins and outs of the local building codes. Yes, there is a model “International Building Code” but each jurisdiction can implement those ideals differently and not knowing those differences can cause expensive rework to satisfy building inspectors. The point, of course being, that some employees have institutional knowledge that would take time and cost money to recreate.

Maintenance seems to be another place that looks like an easy cut. If a machine is idle, we don’t need to keep monitoring its status so we can cut maintenance staff. Anybody who has left their bicycle out in the yard for the winter should understand that equipment needs to be preserved when its not in use. That idle equipment can rust, lubricants can dry out and gum up the machinery so it needs to be “exercised” by running every few days or weeks. Someone has to do those checks and cycle the machines.

In every single case, layoffs lose some capacity and when the crisis ends and production goes back up. Recreating the institutional knowledge of veteran employees and bringing the machines back on line can often end up costing more than keeping the existing people on staff. And here's a thought, rather than cull your workforce, start  by cutting salaries across the board especially among high-paid executives and managers. Sure everyone from the CEO to the lowest paid employee will make less, but you'll preserve your institutional knowledge base.

Of course you don’t get the immediate wonderful taste of doing something, and often the investors (who by the way usually have a completely different goal than management) can’t can’t see any dramatic changes that will impress them with your creative management. But maybe, just maybe, the real place to cut is the junk food. No more candy, no more prepared foods, start buying fresh produce and taking the time to cook it yourself.

What might the management equivalents be? How about cutting costs by making your own parts rather than buying your parts from another source? This is called insourcing as opposed to outsourcing. Then the parts manufacture profit margin stays on your books. Some might think they can’t do that because the investors won’t see the dramatic change. 

Downturns don’t happen in a vacuum. Usually there are warning signs and good management works hard at staying ahead of that curve. If you were “eating healthy” all along, you would have  been looking for these saving long before the downturn hit and you would be ready to cut in the savings. You already know you are a labor-intensive business that requires trained workers so you have a plan ready to preserve that capacity in the face of a slowdown.

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