It's argued that the most valuable member of staff or external consultant to any business over the next couple of quarters will be the 'Professional Cost-cutter'. How depressing that it went this way.
Handing The Keys of The Car to the Bank
It's like having a shiny new Ferrari on a loan. After driving it around proudly and recklessly, you can't pay for it anymore, so you hand the keys to the Bank Manager where the loan is. After a short while, the Bank Manager hands back the car with a smile, 'I've saved your car and now it will be more economical, less costly to service and easier to park. Best of all, I've reduced the loan and you can afford it.' Sounds good, but to your dismay, he hands you back a mini.
Cost cutting is all about ripping the heart out of business and it takes the decision-making power away from the executives and hands it to accountants. They know little about the markets, the opportunities, the vision but they know plenty about numbers. In their view, a mini is perfectly adequate to get you from A to B while the sales and marketing people know a Ferrari is needed to get to the long term goal. But it is the price you pay for laissez faire management, wishful thinking and not coming to terms with reality.
Back in the 80's IBM had an internal name for any manager who talked up their business as 'They gave good slide', a vernacular reference to their ability to dress up the business in a slick presentation. IBM, from dominant market leader, 'Hit a Wall' and lost market share and its dominance as it failed to see the market change. It took a guy who ran a cereal company, Louis Gerstner, to come in and give it a taste of cost-cutting reality. IBM was saved and while it was no mini, it was no better than a high end Ford for the future.
A Bit of Thatcherism at Work
It’s analogous to Margaret Thatcher coming to power after the disastrous Labour regime of the 70s. Britain was literally on its knees, held to ransom by a Union movement that had become cancerous. She made hard decisions on cutting the cancer out and in the process hacked the heart out of British business. Love her, hate her, deify her or demoniser her, she did the only thing left to do to save Britain form economic hell. The outcome was that she gave a recovered economic Britain to Labour in 97 but in culling manufacturing and privatising anything she could, she gave way to the rise of the Service Industry and Financial Sector upon which our GDP is so dependent, plus made privatised utilities vulnerable to foreign wolves.
The fact is that cost cutting has only an eye on business financial health and so often leaves companies in a poor position to tackle the future and in many instances the companies never, ever attain the same market status again, some get bought and some meander off into some new areas. There are not that many shining examples of cost-cutting becoming a strategy for the future.
Cost Cutting As a Business Strategy
Well you wouldn’t run our company on cost cutting alone – there wouldn’t be a great future in that. But equally why would you run your company on the expectation on continual growth when the market around you and your underlying performance tells you otherwise? The fact is executives and managers have been doing the latter for some time as the world financial situation unravelled a truth which everyone at least suspected and many just denied but knew it. The growth of the UK economy was entirely dependent on a falsely exaggerated growth due to a poor business model.
Yet for the last 10 years many firms have used cheap and freely available money with low security to grow. Now that not only have markets slowed but the supply of that cheap money has too.
Firms have not reforecast or budgeted with 'what ifs' and have directly run into a wall. The only way out is a Thatcher-style cost-cutting mania and out come the so-called experts to do so. What happened to executives and managers at BT forecasting and anticipating a downturn? How did BT within a reporting cycle come to have to cull 6% of its workforce? It is management out of touch with reality and giving each other the news everyone wants to hear. Now that the ‘Wall has been Hit’, BT managers are happy to hand across the problem to accountants to crunch the numbers and then they present the bad news to the workforce claiming unforeseen global problems when the average man in the street without an MBA could have told them last August at the latest that the world had changed.
This style of management makes me angry but it is also a huge learning point for all SMEs and businesses that have yet to take action and review their forecast, budget and plan taking account of the world economic position. Coincidentally, I read a press release from some Recruitment Outsourcing company who had landed a multi-million contract to supply people to BT. Well that’s a contract they are going to love and BT’s failure to communicate its position early probably means that supplier will have to make corresponding big cuts, I wonder if anyone anticipated it?
Call to Arms
At the risk of repeating myself, get out the pencil and paper and the spreadsheets – start reviewing your numbers and plans and do it now before bad times hit you.
- Review your forecasts
· Review every deal in the pipeline – do ‘what ifs’ and challenge salespeople’s thinking on reality
· Re-budget your costs to take account of the new view of the business
· Take decisions on costs – make sure you are not investing for a continued growth if it does not coincide with reality. Make sure any cost that does not yield instant ROI is not spent.
· Review easily adjustable costs like marketing, training, travel policy and general business trips – use technology like audio and webconferencing to save travel costs
· Make tough decisions early – if you have to make people cuts, do so with the future in mind not because you are desperate
· If you need extra resources, be innovative – look at getting people in on contract to do specific work with specific results in mind. Put the power and resource where it is needed and when. Try to avoid employing extra people until you can see clear returns on their roles. Also, think long and hard about back filling headcounts slots with permanent staff – be flexible and innovative and look to hire in the resource on short term projects as and when you need it.
· Make sure you join in your key customers – go and visit them, understand their business outlook and requirements in tough times. Throw a blanket of value and service around them to ensure they stay with you.
· Revisit your Value Proposition as a business, make sure you strengthen it, clarify it and quantify it, and then make sure everyone in the business can articulate it at will.
· Don’t bank on large scale customer acquisition projects working – unless you have the key to unlocking instant profit and with little change (an elixir) then companies will be loathe to change tack and more interested in cost savings rather than long term ROI calculations. Businesses will be looking for Return on Cost not Return on Investment. It’s important not to get swallowed by your own bull and wishful thinking.
Finally, if you do nothing else, just take a sanity check and ask yourself, what would happen if my next best new customer defers their decision to buy because their CFO mandates a 6% cut in people costs without warning?
Think it can’t happen?
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