Cost-Efficient Solutions: Why the Expensive Fix is Not Always the Right One

A toothpaste factory had a problem.  They sometimes shipped empty boxes without the tube inside.  This challenged their perceived quality with buyers and distributors.  Understanding how important that relationship was, the Chief Executive Officer of the company assembled his top people.

The Million-Dollar Fix

They decided to hire an external engineering firm to solve the empty-box problem.  The project followed the usual process: budget and project sponsor allocated, request for proposal issued, third-party firm selected.  Six months and millions later, they had a fantastic solution, delivered on time, on budget, and to a high standard.  Everyone involved was pleased.

The engineers had installed a high-tech precision scale that would sound a bell with flashing lights whenever a toothpaste box weighed less than it should.  The production line would stop.  Someone would walk over, remove the defective box, then press a button to restart the line.  No empty boxes left the factory again.

With no more customer complaints, the Chief Executive Officer felt the money was well spent.  He reviewed the line statistics report and found the number of empty boxes caught by the scale in the first week matched projections.  Over the following three weeks, however, the count fell to zero.  The estimated rate should have held at a dozen boxes a day.

He had the engineers check the equipment.  They confirmed the report was accurate.  Puzzled, the Chief Executive Officer travelled to the factory floor, watched the line where the precision scale had been installed, and saw, just ahead of the multi-million-dollar solution, a twenty-dollar desk fan blowing the empty boxes off the belt and into a bin.

He asked the line supervisor what that was about.  “Oh, that,” the supervisor replied.  “Carl, the kid from maintenance, put it there because he was tired of walking over, removing the box, and restarting the line every time the damn bell rang.”

This story circulates widely in business and engineering circles as a teaching parable, and its original source remains unverified.  Whether it happened as told or not, the lesson has been tested against real corporate restructurings often enough to hold regardless.

A Real Restructuring Story

Gordon M. Bethune took over as Chief Executive Officer of Continental Airlines in 1994, inheriting a carrier on the verge of its third bankruptcy in a decade.  The board had cycled through nine chief executives in ten years before appointing him.  Working with consultant Greg D. Brenneman, Bethune drew up the Go Forward Plan, and the most expensive line item was not the headline change.

Bethune opened the company’s own financial books to every employee, so staff could see exactly why layoffs or delayed pay rises were being considered, rather than hearing rumours filtered through management.  He told employees to use their own judgement rather than follow the airline’s rigid policy manual, reportedly burning a copy of the old manual in a parking lot to make the point unmissable.  Then came the cheap fix: a US$65 bonus, paid to every employee company-wide, every month the airline ranked in the top five nationally for on-time arrivals, calculated after Bethune determined that hitting that mark would save the company roughly US$6 million a month in disrupted operations, hotel costs, and missed connections.

Continental’s stock price rose from US$2 per share to over US$50 per share during Bethune’s decade at the helm.  Customer complaints turned into industry-leading service rankings.  The fix that moved the needle was not a consultant-built system imposed from above.  It was open information, restored trust in employee judgement, and a simple, transparent incentive tied to the one metric customers cared about.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code