Last summer, our family enjoyed a wonderful cruise through the Caribbean aboard Mariner of the Seas, a Royal Caribbean ship. Visits to Haiti, Jamaica and the Bahamas were interspersed with relaxing days at sea. We all love cruising, so it was a great time.
On one of the days at sea, we had a behind-the-scenes tour of the ship’s operations. To say its processes are impressive is a significant understatement. The ship is a well-oiled machine. We saw how the crew managed on-board inventory, food service, mechanical matters, laundry, crew housing, crew off time, the lookout process and more. Everything was done with a high degree of excellence, which was consistent with the experience we had as guests.
And the most amazing part? They manage everything with very little space. Sure, the cruise ship is big, especially compared with the boats we build at Correct Craft, but most of its space is devoted to living areas and amenities for the thousands of guests and crew. The actual space for the operations of a floating city is small.
Mariner of the Seas’ operations must be efficient; there is no choice. Limited room and an inability to restock at sea requires optimal use of space. The tour reminded me of time spent studying Lean Six Sigma — a process improvement methodology — when I first began fully understanding how space can be your enemy. A cruise ship’s limited space forces it to be efficient, and that is a good thing.
I was so impressed with the boat’s operations that I had to share the experience with our Correct Craft team. The experience has led us to begin using a new term that helps our team visualize how we want to be: “Cruise Ship Good.”
Leaders who are not forced to manage with space constraints are likely to operate inefficiently. Space is not your friend. I have seen this space issue firsthand in companies I have led throughout my career. New space results in higher costs and less efficiency. Here are some examples.
Capital Costs
Acquiring space and filling it with people, equipment and inventory costs money, often lots of money. I was recently with a team celebrating what they had done with new space at their facility, and it was impressive. I mentioned that while it is great to celebrate what had been done with the space, the team must view the results through the perspective of the capital that was spent to create it. Spending a lot of money to do
anything requires a return on investment that is easy to forget in the excitement of doing something new. Unfortunately, many organizations celebrate expansions that never provide an adequate return on the capital invested.
People Costs
Most organizations fill space with new team members who may not be needed without the additional space. More space often creates more distance between processes and storage areas, which can lead to wasted time and reduced focus. Space also reduces pressure to simplify workflow, resulting in complexity and increased costs.
Inventory Costs
Additional space for materials almost always increases inventory costs and lowers inventory turnover; I have seen this firsthand. Space often makes carrying additional inventory irresistible, which increases both carrying costs and the risk of obsolescence. Plus, managing more inventory often requires more people, which adds further to the costs. The inventory issue is not just limited to raw materials; more space also encourages a higher stocking of finished goods.
Increased Overhead
Costs of space, which include rent, mortgage payments or opportunity costs of money invested, are just the start. Utility bills, maintenance and supplies often increase, too. Insurance is also a consideration, not only insurance on the space but also insurance on the equipment and inventory that fill the space.
Quality and Organizational Costs
More space often makes it harder to ensure quality. It also makes following the 5S methodology — a productivity tool used for better organization and cleanliness — more difficult.
Loss of Creativity and Innovation
Several years ago, I spent time in Washington, D.C., as part of a group that advised the U.S. Secretary of Commerce. We were talking about regulation and how it often drives innovation as companies work to comply with new rules. Lack of space works the same way. When space is limited, it often drives significant creativity and innovation as managers work to get results within the constraints of the available area. More space reduces the need for this creativity and innovation, and without the need, creativity and innovation don’t occur.
When I was a teenager growing up in South Florida, there was a popular Italian restaurant in West Palm Beach that everyone loved, aptly named Italian Village. Pretty much every weeknight, there was at least a one-hour wait to get into the restaurant, and on weekend nights, the wait was even longer. The owners of Italian Village were doing well but wanted to expand and decided to triple the size of the restaurant. Within a year of the expansion, Italian Village had gone out of business, never to reopen. The owners had a popular and profitable business, and they tried to expand, ultimately failing, which led to its closure. The extra space and all the challenges I’ve noted here put them out of business.
As part of looking for potential acquisitions over the years, I have had the opportunity to review the financial statements of numerous companies. Interestingly, those that function under tight space constraints often produce the best financial results. Like Italian Village before its expansion, they were forced to be creative and innovative with their space, leading to great results.
I have led many expansion projects over the years that have had good results, so I am not saying that a company should never add space. Sometimes it is the only way to grow. However, before adding space, do two things: Be sure it is absolutely necessary and ensure you have considered the potential unintended consequences.
Bill Yeargin is the CEO of Correct Craft and author of six books, including the best seller, Education of a CEO.
This article was originally published in the July 2024 issue.
