The Disadvantge(s) of Across the Board Cost Cutting

Every executive I’ve partnered with has consistently said there is always fat, and on an ongoing basis we should find ways to do more with less. No brainer.  The economic shock has managers cutting across the board. Is that wise or otherwise?

Throwing good money after bad practices is what you want to cut. But you don’t want to let the GM finance people design the cars. They’ve actually done that in the past, cut costs and no one bought the cars. Saving money is not the game. Making cars that make money is the game winner.

Our economy works because of cash flow. If everyone or enough people take their money out of the flow it not only reduces the existing cash flow, it makes it harder to rebound. Fear takes hold and accentuates the original problem.

Structurally there are some fundamental shifts that must be made. I think the new Obama administration has an economic team that is sharp enough (pragmatists rather than ideologues)  to reduce the rate of the fall and build confidence to get people and companies into the game again. That’s step one. The next step is the time frame. How long will it take and how will you respond in the meantime?

20% cuts across the board will provide expense controls. Even in academia, department heads and program heads are being asked to simply cut. But from where? If you want to drive more business, cutting marketing and sales seems like a counterproductive practice, unless you don’t think you have new customers. The innovators will create value, the Advantage-Makes will spot the opportunities.

CFO’s are the keeper of the cost control levers. They know their job, and the great ones are particularly skilled at managing the ROI. The problems is short term controls that manage cash flow now, but reduce or worse miss opportunities that pay for themselves over time.

Too many company executives are inadvertently contributing to their own pain by playing duck and cover. Again this might not be there fault given that they won’t get beat up for following orders. Take for example a client who typically get a 3% response rate from a marketing campaign to the Fortune 100 CEO’s. If they took the usual route they’d play duck and cover, and be glad they achieved the 3%, who could fault them. But on the other hand,  working with the Advantage-Making principles we devised a campaign that actually achieved a 30% response rate.

From 3% to 30%. Which result would you pay for? And more importantly you must invest in your people who are Advantage-Makers. Not all people operate the same. This is akin to the old 80/20 rule. Your stars will shine now.

The disadvantage of cost cutting with Advantage-Makers is treating everyone equally. It’s really important to consider what is an expense that can be cut and what looks like an expense that is actually an investment and will keep both the Advantage-Makers in your company and your company in the money.

Getting rid of ‘dead wood’ whether people who aren’t rowing with you, or processes that are logjams, or organizational practices that are redundant or create role conflict, or products and services that don’t produce are all solid cost cutting practices. But please be careful of playing duck and cover, rather than creating advantages that generate cash flow and revenue.