The High Cost of Cheap

A Tale of Towels

How the false economies of “cost-saving” can destroy companies.

A reporter for an international magazine, you arrive early for an interview with executives of a large Southern California aerospace company. After checking in at the front desk and receiving a visitor’s badge, you pop into the lobby restroom to…whatever…, correct wind damage to your hairdo, and ensure the fashion industry’s most enduring abomination, a man’s necktie, is in its proper stranglehold position.

You wash your hands, then pull a brown paper towel from its wall-mounted dispenser. But you’re left holding a quarter-size chunk of disgustingly thin, soggy mess between thumb and forefinger, not the sheet of absorbent paper towel you expected. Irritated, you attack the dispenser with both hands, grabbing three or four wispy, almost transparent, brown sheets. As you dry your hands and pitch that wad of moist paper into a trash can, you notice the polished-ceramic tile floor is littered with a half-dozen of those quarter-size paper patches.

You return to the spacious, elegantly appointed lobby and wait for your escort. Sitting in a comfortable chair, you reflect on that trivial experience and wonder: What message is transmitted by a micro-thin, brown paper towel? I submit that it screams “CHEAP!” Upstairs, in one of the Mahogany Row executive offices, sits some bright spark of a Chief Financial Officer, who is absolutely, positively convinced that he’s saving scarce corporate funds by procuring cheap, laser-cut thin, brown paper towels. Considering how many restrooms and factory-floor wash basins are scattered throughout multiple onsite facilities, the choice was a no-brainer. Rather than buying hundreds of higher-cost, 300-sheet packages of thick, white paper towels, that CFO and his procurement team dictated that the company only purchase the cheaper, 500-sheet variety. Assuming a person uses one towel per restroom visit, the cheaper, 500-sheet variety would seem to make perfect financial sense — 500 versus 300 sheets, for roughly the same price. Bad assumption.

Our smart CFO relied on what I call First-Derivative reasoning, ignoring Second- and Third-Derivative factors. A little forethought about human nature would have revealed a critical Second-Derivative fact: Nobody in the huge aerospace plant used only ONE of those chintzy brown paper towels! Instead, thousands of employees and customers routinely consumed three or four towels per use, because their first attempt yielded a quarter-sized piece of wet paper. So, instead of saving money, those “cheap” brown paper towels were actually far more expensive, on a per-use basis, than the “expensive” thick, white ones. The reality of our CFO’s “cost-saving” power-towel campaign probably never surfaced, because nobody bothered to look at any Second-Derivative factors, such as how many towels people actually had to use. Bad assumption by out-of-touch managers, and thousands of dollars wasted over the years.

But a Third-Derivative element may have been even more costly. The message those cheap, brown paper towels sent to customers and employees had a much more-potent impact. At a subliminal level, the company’s paper-towel selection screamed, “We’re cheap!” To customers, that message, received and registered at the subconscious level, might easily translate to nagging suspicions that the aerospace products designed, tested and manufactured there — radar systems, in this case — might also be substandard. The customer might think, “If they go cheap on something as trivial as paper towels, why wouldn’t they also opt for cheap integrated circuits, solder and bearings? Is the company cutting corners on testing processes? How can I trust this outfit to deliver a high-quality product?”

Potentially more devastating, though, is the subtle message sent to thousands of that plant’s employees: “You’re not valued.” Again, the message may register at only a subliminal, subconscious level, but it’s definitely received. Every time a mechanic, engineer or production-line technician washes his or her hands, then grabs one of those hated thin, brown paper towels, something deep in the gray matter says: “You’re not worth spending company money on thick, expensive white towels.”

Finally, that latter perception is almost assuredly reinforced by the average employee’s knowledge (or assumption) that the spiffy, expensive white towels are definitely stocked in Mahogany Row restrooms. Message? “Executives deserve high-dollar white towels. You don’t. So, suck it up and use the crappy brown ones.”

Now, what’s the impact of these subliminal messages? Maybe the company’s customers are looking harder at product quality. Maybe the firm’s business development unit must now work harder to win that next big contract, because people on the customer’s proposal-evaluation team have been in the company’s plant, and have an unexplained, gut-level perception that product quality might be suspect. They can’t put their finger on specifics, but the feeling is there. Better look harder at the proposal’s specifics, or make sure a new contract holds the company’s feet to the fire, by requiring more testing, more quality-assurance data, more proof that the product will do the job. All because some executive opted for cheap paper towels.

In house, the perception that working-level employees aren’t valued as much as executives can have devastating impacts. Maybe that line technician takes an hour longer to do a task. Maybe that engineer says, “What the hey. I’m leaving at five. Yeah, I could finish this design and get it down to the floor today, but who’d appreciate the extra effort and time devoted? I’ll finish it tomorrow.” Maybe that salaried lead mechanic decides to skip an “opportunity” to give up his weekend with family and work overtime (unpaid, of course) to make sure a radar unit ships on schedule. In each case, if those employees perceive that management doesn’t appreciate and value them, they simply will NOT bust their tails to go the extra mile for their company. Mediocrity becomes the norm, thanks to those blasted cheap paper towels.

Yes, it’s a trivial example, but A Tale of Towels illustrates the oft-missed lesson of false economies: “Cheap” can be very, very costly. And, if America is to regain its economic vitality, federal, state and local governments, as well as large, medium and small companies, must root out and discard “cost-saving” policies, procedures and attitudes that drain tax revenues, corporate profits and universal goodwill.

“The High Cost of Cheap”

As a reporter/editor for an international magazine, I visited hundreds of companies, laboratories and government organizations during my 22-year career as an aerospace journalist. Prior to that, I served as a U.S. Air Force officer and worked 12 years as a Flight Test Engineer for several aerospace companies. Consequently, I witnessed the full spectrum of brilliance, mediocrity and outright goofs committed by both government and private organizations pursuing “cost-effectiveness.” From airlines to zoos, these entities send subliminal messages to customers and employees alike, yet most have little appreciation for the incredible damage they do to their image and bottom lines.

Examples of the good, bad and ugly practices I and others have observed will be shared in this series. Periodic postings will highlight how managers unintentionally alienate their stakeholders, typically in the name of “cost-savings.” Conversely, I’ll showcase shining examples of how astute companies shape positive customer perceptions and nurture strong employee loyalties.

The difference can translate to millions of dollars. If you understand and embrace the “Law of Cheap,” your organization will thrive. If you don’t, you’ll never realize those precious, all-important “cost savings,” and your organization will suffer monetary losses and negative perceptions. Today’s economic stresses dictate that you get it right, or your organization may cease to exist. Just ask the executives, employees and shareholders of Circuit City….