So things aren’t working out so well for vaunted 3G Capital – the darling of the investment world who bought Budweiser, Heinz, Burger King and more and went through them with loads of largely insignificant cost reduction edicts. Demanding that both sides of copy paper be used and having executives share hotel rooms when traveling were not really about increasing profits to the degree that they could be noticed on the bottom line as they were to drive a new culture – the message that there’s a new sheriff in town and war had been declared on all spending.

Every now and then I come across something that causes me to stop and think, “Wow!  This sure brought things into focus.”  The Costs of Accountability – an article in The American Interest by an academic by the name of Jerry Z. Muller did just that.

It seems as though the opposite should be true but the fact is that more often than not the simple solution requires in depth knowledge and a lot of hard work, while complexity is the child of laziness and ignorance.  How else can we explain the obsession with formulas and factors in management decision making?

Case in point:  A client that was presented with a request to invest in equipment that would reduce the set-up time of a machine, justified by multiplying the time saved by a fully loaded labor rate of $150 or so.  The math is easy, to be sure.  Save 6 hours a week times 50 weeks a year times $150 equals $45,000 a year in annual ‘savings’.  It took all of about a minute to calculate the ‘savings’ using this standard cost based approach, and the $150 per hour rate is backed up by reams of accounting allocation logic and data.  The problem is that, in spite of the two or more decimal point precision of the accounting math, the $45,000 ‘savings’ figure is pure bovine scat (known more commonly by its acronym – ‘BS’).

Mattel, the toy folks, are in a heap of troubleSales are down, especially Barbie doll sales, Wall Street is hovering over them like so many vultures, their new product pipeline is a wreck, and they need to raise prices because the costs of making all their stuff in China is on the rise.

So what are they going to do about it? “New chief executive, Christopher Sinclair, pledged a ‘rapid redo’ of the company culture to develop more creative toys and sell them better, after Mattel posted its sixth straight quarter of sales declines.”  Will they succeed?  Not a snowball’s chance in the netherworld.

Let’s look at the situation from a lean perspective, shall we?