Forms of Cost-Cutting Actually do More Harm Than Good

You know the drill. Revenue is falling short of expectations so it’s time to tighten the belt, cut discretionary spending, and try to keep the bottom line numbers on track. Unfortunately, the cost-cutting we’ve all been taught are remarkably short-sighted, and often do more harm than good. Share this with your CFO and find out if any of these well-intentioned actions are on the drawing board.

What are the implications on your business when you:

1. Cut travel: One leader I encountered in a seminar confessed that he’d cut back on travel for his sales reps… only to see competitors grab more market share, thus creating an even deeper hole for him to dig himself out of.

2. Cut customer perks: Another leader chimed in with a similar story. He’d belatedly realized that cutting customer perks such as lunches and events were cut off without any explanation, had planted two seeds of doubt in his customers’ minds when formerly loyal customers all of a sudden accepted quotes from competitors (digging that hole deeper again). What he found is that they felt abandoned and less important… and the research clearly shows that of customers who leave, 67% do so because they perceive indifference on the part of the vendor. It also made them wonder if the company was “OK”… and one of the most powerful drivers for loyalty is having peace of mind.

3. Cut training: I used to run the Executive Education division of a leading university, so I understand that there are always discretionary training expenses that can be deferred. However, ponder this. On average, it takes someone 5 times as long to learn something themselves vs being trained or taught by an expert. So if you’re moving people to new roles, or bringing on new or replacement hires, think again about putting their training on hold. The productivity or waste costs are less visible than a training invoice, but they’re there nonetheless.

4. Cut salaries: Everyone likes to feel valued, and most live up to their salaries. Mess with that, and someone has a very embarrassing and painful conversation to have with their spouse, who will likely proceed to make their life a living hell as bills pile up through any adjustment period. Your best people will have no trouble finding lucrative positions elsewhere. The B and C players you’ll be left with will likely demonstrate even lower productivity due to fear and the challenges at home.

5. Cut staff: You can’t cut your way to growth, as the world’s second largest computer company found out the hard way when they downsized 120,000 people worldwide and disappeared into the arms of a competitor they’d never taken seriously. Yes, you can cut the chaff during tough times, but go beyond that to where you’re eliminating essential value-add roles, and you’re on a slippery slope.

So if you can’t cut costs the usual way but you still need to eliminate overhead to stay on track, what’s a frustrated business leader to do? Cut the costs that shouldn’t be there in the first place – the profit leaks and sludge that creep into every business over time, regardless of how well-run it is. I shared a blog post devoted to that earlier this month. C’mon back next week for the next installment for 3 more great ideas on where to trim costs the RIGHT way.

What’s the worst well-intentioned cost-cutting mistake YOU ever learned the hard way?