Managing Costs is a Change Strategy not a Cost Cutting Exercise

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Last week I was invited to a discussion with a group of business owners one of whom was very anxious about the state of his current cashflow, I’ll call him Jack. Jack had called the group together in order to seek insights and advice on what he could do to address the situation, or at least that’s what I thought the meeting was to be about.

As it turns out those gathered were informed by Jack that he had already started reducing costs by cutting a number of key positions without giving the situation much thought at all. Most within the group sensed panic, particularly when it came to light that Jack had metrics in place that were providing accurate and regular reports on business performance and cashflow, however for some months he had stubbornly refused to accept the early warning signs that his company had a cashflow problem.

Very little occurs in growing revenue or managing cost unless people at every level of the organisation commit to contribute. Further, if reducing cost means reducing people then it is important that this be viewed by the leadership team as a strategic decision and not a cost reduction exercise.  This requires careful planning because when cashflow returns to desired levels, and in this case it will if Jack takes on board the advice he was given, by cutting people he may have unknowingly delayed recovery because he no longer has the right talent to enable him to be nimble, and to adapt and respond quickly to opportunities as they emerge. We advised him to think carefully, not just about immediate needs, but what knowledge, skills, and experience he will need to retain for the future.

The other error he had made was to use the company’s cashflow crisis as a way of dealing with so called “under performers”. If people are underperforming, the first question is why? Underperformance needs to be dealt with by the person’s manager as it is a performance issue. Maybe Jack needs to look at the performance of a number of his managers.

The group offered Jack some other options:

  • Consider restructuring roles; consider carefully what options are available.
  • Reduce spending:
    • Can some areas operate for a period with less supervision or management?
    • Reduce incidental spending.
    • Can salary and wage increases be put on hold or lower the percentage increase offered?
  • Use Team Hacks to generate ideas to reengineer and change processes to drive greater efficiency and better co-ordinate activities without loss to external or internal customers.
  • Examine if work flows can be reshaped to eliminate duplications and eliminate gaps.
  • Examine the viability of suspending or delaying programs.
  • Finally, reduce headcount but not before considering the knowledge, skills, and experience that will be needed as the situation recovers. If headcount reductions are required do it once; avoid at all costs death by a thousand cuts.

It’s inevitable that any amount of cost reduction causes discomfort, however the goal remains to eliminate any area where cost exceeds the value delivered.

Viventé Australia enables leaders and managers develop the bond between people and performance, creating a powerful advantage: the synergy between people, leadership, management, and culture, produces performance that allows your business to achieve its best.