Cool Initiative
During the worst worldwide recessionary time, lots of pain was felt by lots of people though some rich and famous were unaffected by it as usual since they had already transferred lots of money from others in their coffers through various creative means.
And in the plethora of pains among majority of people, the specks of funny absurdities could surely make one laugh occasionally and forget the pain momentarily.
This is what exactly happened in the Ultimo Efficacy Inc.
Ultimo Efficacy was doing pretty well and making good amount of money even in recession. But recession provided a great and valid excuse to many companies including Ultimo Efficacy to cut out even on the otherwise normal expenses of the corporation and get the employees at various levels to work in highly constrained conditions. Idea was that they would easily accept such a thing under the hoax of recession. Rather they would be happy doing it, feeling all the way like martyrs and would soon get habituated to it. That way even after the recession was over; they would not grudge the absence of perquisites, facilities and money withdrawn from them during recession.
So, Ultimo Efficacy which was already adept at converting threats into opportunities, used recession to suddenly impose one of the most important management principles i.e. cost reduction or cost control. Though they could have very well used cost reduction to their advantage even in non-recessionary or normal times of business but did not do it because at that time they were soaked in unimaginably high profits and cost control was thrown out of the windows as an obsolete management principle or unnecessary distraction.
They got reminded of cost control mainly to achieve the objectives enumerated in one of the earlier paragraphs. So, top management of the company issued out a circular to each and every employee which read as follows. The measures contained therein were addendum to the cost control that was already being exercised by the company through the customary layoff of employees practiced as a part of recession time ritual. The contents of cost control circular issued in Ultimo Efficacy are given below:
Employees had a fun-day reading the circular and savoring its contents. It brought to them some momentary pleasure amidst the pain created due to bleak recessionary environment.
A particular junior officer Simple Simpson in company’s purchase department got hyper after reading the circular. He decided to contribute his might to the laudable company wide cost control efforts.
It was summer time and the region where Ultimo Efficacy Inc’s offices and factory were located; the summer could be very severe. So the employees were provided cool water to quench their thirst in such severe summer. The company used to provide many water coolers at different locations in the offices and factory premises. Every year company used to replace the worn out water coolers with the new ones. The purchase requisitions for replacement water coolers were made by the user departments and sent to purchase department. Simple Simpson in purchase department used to process the purchase requisitions of water coolers, contact the water cooler manufacturers and buy them.
However, in view of the cost control measures, Simple Simpson suggested to the user departments that instead of water coolers he proposed to buy the earthen pots. He had seen such earthen pots being used by the people who could not afford to buy refrigerators or water coolers, particularly in the poorer countries. The water filled in the earthen pots got cooled pretty fast and remained cool for unlimited period.
User departments were too happy to go along with this proposal of Simple Simpson. They thought that in doing so they too would thus contribute towards top management’s cost reduction plan. If price of a water cooler was equivalent of $350 to $400, price of an earthen pot would be mere $1 or so. The proposal had tremendous potential of cost reduction.
A total of 100 earthen pots were requisitioned. Simple Simpson started processing this requisition for purchase of earthen pots. He sent out enquiries, got the commercial terms from the makers of earthen pots, compared various quotes thus received and finally zeroed in on one supplier who offered the minimum price per earthen pot.
As per the formal authority delegation chart of the company, a junior officer at Simple Simpson’s level was not authorized to negotiate with the suppliers. Only his boss was authorized to do so. But Simple Simpson wanted to be true to his salt at least on this occasion. He wanted to respond to the call of cost reduction of top management all by himself. After all it was his suggestion to buy earthen pots in place of water coolers and save for company thousands of equivalent dollars. So, he decided to stick his neck out and decided to negotiate with the shortlisted supplier of earthen pots to get a still better deal from him.
The maker of the earthen pots did not reduce the price further but agreed to give away 20 earthen pots over and above the 100 on the purchase order. He mentioned that he had no use of those 20 pots and could as well give them away to Simple Simpson. Simple Simpson was mighty happy with his first stint at negotiations.
The 120 earthen pots were received by Simple Simpson and he got them positioned inside Ultimo Efficacy Inc’s premises. People liked the cool water of these earthen pots and employees at grass root levels appreciated the creative brains and efforts of Simple Simpson and the resultant enormous savings. Simple Simpson became a hero for the time being.
But his glory did not last long. The period during which these 120 earthen pots were purchased was the physical inventory checking period of the company as per its laid down systems. A sharp young auditor did an audit on the earthen pots. He had the numbers on the earthen pots on the material requisition slip reading at 100 and the same 100 number was found on the purchase order. But despite physically counting a number of times the physical inventory of earthen pots came to 120 on every count. Several hours over a few days were spent by the auditor in counting the earthen pots again and again because the physical count was not tallying with the numbers mentioned in the documents and he thought that he was making some mistake in counting. Finally he decided that the physical count did give him a figure of 120 earthen pots and he was not making any mistake in counting. As per him it was a serious audit discrepancy- how the company could have more material than what was ordered? That showed slack internal controls. Then after doing a detailed research on the causes of this discrepancy, he ultimately stumbled on the fact that the discrepancy was the outcome of the negotiations carried out by Simple Simpson. And that was another serious violation of internal controls since Simple Simpson had no business to negotiate with the suppliers as per company’s policies.
As per the auditor a number of violations of systems and procedures of the company were found in the transactions of earthen pots. He documented them in his formal written report as follows:
Top management of the company felt terribly offended by such irregularities committed by its employee and ordered an enquiry against Simple Simpson. He was wondering as to what wrong did he do in saving such a lot of money for the company- he did not commit a fraud, he did not commit a crime, he did not squander company’s money, he did not take bribe- all he did was to take initiative and save money. And for this was he being pushed in front of the firing squad?
During the worst worldwide recessionary time, lots of pain was felt by lots of people though some rich and famous were unaffected by it as usual since they had already transferred lots of money from others in their coffers through various creative means.
And in the plethora of pains among majority of people, the specks of funny absurdities could surely make one laugh occasionally and forget the pain momentarily.
This is what exactly happened in the Ultimo Efficacy Inc.
Ultimo Efficacy was doing pretty well and making good amount of money even in recession. But recession provided a great and valid excuse to many companies including Ultimo Efficacy to cut out even on the otherwise normal expenses of the corporation and get the employees at various levels to work in highly constrained conditions. Idea was that they would easily accept such a thing under the hoax of recession. Rather they would be happy doing it, feeling all the way like martyrs and would soon get habituated to it. That way even after the recession was over; they would not grudge the absence of perquisites, facilities and money withdrawn from them during recession.
So, Ultimo Efficacy which was already adept at converting threats into opportunities, used recession to suddenly impose one of the most important management principles i.e. cost reduction or cost control. Though they could have very well used cost reduction to their advantage even in non-recessionary or normal times of business but did not do it because at that time they were soaked in unimaginably high profits and cost control was thrown out of the windows as an obsolete management principle or unnecessary distraction.
They got reminded of cost control mainly to achieve the objectives enumerated in one of the earlier paragraphs. So, top management of the company issued out a circular to each and every employee which read as follows. The measures contained therein were addendum to the cost control that was already being exercised by the company through the customary layoff of employees practiced as a part of recession time ritual. The contents of cost control circular issued in Ultimo Efficacy are given below:
- Under compulsions of difficult circumstances of recession, all the employees at all the levels are requested to concentrate on cost reduction throughout the organization.
- In view of this company has decided to go slow on promotions and salary raises for the next two years; the budgets on this count are being slashed by 75%. (Not on the office circular: It was another matter that the CEO and other top executives of the inner circle of management got away with bigger packets of fat (underserved) salaries and obscenely high bonuses during these two years later on).
- Avoid travel. All the employees will travel by the cheapest modes of travel if travel is at all essential. It will be in the interest of the employees to walk if the distance travelled is at least 5 miles or below as you may be aware that walking is the best exercise to keep oneself fit and healthy. If any employee wishes to walk for over 5 miles, it will be highly appreciated. (Not on the office circular: It was another matter that the CEO and other top executives of the inner circle of management continued with their earlier habits of traveling by private or chartered aero planes or by the first class in commercial airlines and using limousines).
- Everyone will start using both the sides of the paper for writing. Pencils should be used to write rather than pens. The advantage of using pencil is that you can erase what is written by it and thus use the paper again and again. Company is glad to provide a pool of erasers for this purpose as an extra facility.
Employees had a fun-day reading the circular and savoring its contents. It brought to them some momentary pleasure amidst the pain created due to bleak recessionary environment.
A particular junior officer Simple Simpson in company’s purchase department got hyper after reading the circular. He decided to contribute his might to the laudable company wide cost control efforts.
It was summer time and the region where Ultimo Efficacy Inc’s offices and factory were located; the summer could be very severe. So the employees were provided cool water to quench their thirst in such severe summer. The company used to provide many water coolers at different locations in the offices and factory premises. Every year company used to replace the worn out water coolers with the new ones. The purchase requisitions for replacement water coolers were made by the user departments and sent to purchase department. Simple Simpson in purchase department used to process the purchase requisitions of water coolers, contact the water cooler manufacturers and buy them.
However, in view of the cost control measures, Simple Simpson suggested to the user departments that instead of water coolers he proposed to buy the earthen pots. He had seen such earthen pots being used by the people who could not afford to buy refrigerators or water coolers, particularly in the poorer countries. The water filled in the earthen pots got cooled pretty fast and remained cool for unlimited period.
User departments were too happy to go along with this proposal of Simple Simpson. They thought that in doing so they too would thus contribute towards top management’s cost reduction plan. If price of a water cooler was equivalent of $350 to $400, price of an earthen pot would be mere $1 or so. The proposal had tremendous potential of cost reduction.
A total of 100 earthen pots were requisitioned. Simple Simpson started processing this requisition for purchase of earthen pots. He sent out enquiries, got the commercial terms from the makers of earthen pots, compared various quotes thus received and finally zeroed in on one supplier who offered the minimum price per earthen pot.
As per the formal authority delegation chart of the company, a junior officer at Simple Simpson’s level was not authorized to negotiate with the suppliers. Only his boss was authorized to do so. But Simple Simpson wanted to be true to his salt at least on this occasion. He wanted to respond to the call of cost reduction of top management all by himself. After all it was his suggestion to buy earthen pots in place of water coolers and save for company thousands of equivalent dollars. So, he decided to stick his neck out and decided to negotiate with the shortlisted supplier of earthen pots to get a still better deal from him.
The maker of the earthen pots did not reduce the price further but agreed to give away 20 earthen pots over and above the 100 on the purchase order. He mentioned that he had no use of those 20 pots and could as well give them away to Simple Simpson. Simple Simpson was mighty happy with his first stint at negotiations.
The 120 earthen pots were received by Simple Simpson and he got them positioned inside Ultimo Efficacy Inc’s premises. People liked the cool water of these earthen pots and employees at grass root levels appreciated the creative brains and efforts of Simple Simpson and the resultant enormous savings. Simple Simpson became a hero for the time being.
But his glory did not last long. The period during which these 120 earthen pots were purchased was the physical inventory checking period of the company as per its laid down systems. A sharp young auditor did an audit on the earthen pots. He had the numbers on the earthen pots on the material requisition slip reading at 100 and the same 100 number was found on the purchase order. But despite physically counting a number of times the physical inventory of earthen pots came to 120 on every count. Several hours over a few days were spent by the auditor in counting the earthen pots again and again because the physical count was not tallying with the numbers mentioned in the documents and he thought that he was making some mistake in counting. Finally he decided that the physical count did give him a figure of 120 earthen pots and he was not making any mistake in counting. As per him it was a serious audit discrepancy- how the company could have more material than what was ordered? That showed slack internal controls. Then after doing a detailed research on the causes of this discrepancy, he ultimately stumbled on the fact that the discrepancy was the outcome of the negotiations carried out by Simple Simpson. And that was another serious violation of internal controls since Simple Simpson had no business to negotiate with the suppliers as per company’s policies.
As per the auditor a number of violations of systems and procedures of the company were found in the transactions of earthen pots. He documented them in his formal written report as follows:
- As per the company requirements and budgets approved, water coolers were to be purchased and not the earthen pots. No approved or otherwise budget was available to purchase earthen pots. And there was no written authorization of any competent authority to authorize the purchase of earthen pots.
- Discrepancy was found in the number of earthen pots actually physically found in the company’s premises as against the ones requisitioned and ordered. It was a grave violation of the internal controls.
- On enquiry we found that Mr Simple Simpson who was in charge of processing the requisition insisted that he took all these actions as per the management’s directive of cost reduction. Therefore, he took initiative even to negotiate. This again is another violation. Company’s formal delegation of authority does not permit employees at Simpson’s level to take such decisions of purchase of earthen pots in place of water coolers on their own and also to negotiate, all by themselves, with the suppliers.
Top management of the company felt terribly offended by such irregularities committed by its employee and ordered an enquiry against Simple Simpson. He was wondering as to what wrong did he do in saving such a lot of money for the company- he did not commit a fraud, he did not commit a crime, he did not squander company’s money, he did not take bribe- all he did was to take initiative and save money. And for this was he being pushed in front of the firing squad?
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"Sensitive Stories of Corporate World" (available from Amazon, get it online)
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Novel "The Peace Crusaders" http://peacecrusaders.blogspot.com
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