Cost cutting
Definition : An effective short term financial fix that has long-term consequences. These ultimately require more of the same short term fix.
Examples:
Profit numbers were low so managers deferred essential maintenance. They saved money in the short term, but the machines failed. This led to poor customer service, reduced sales and — in turn — lower profits. So they had to cut more costs…
Profit numbers were low so managers instigated a recruitment freeze. They saved money in the short term but nobody was available to handle customer queries. This led to poor customer service, reduced sales and — in turn — lower profits. So they had to cut more costs…
Profit numbers were low so managers put in place a travel ban. They saved money in the short term, but communication, coordination and teamwork failed. So new product launches were delayed. This led to reduced sales and — in turn — lower profits. So they had to cut more costs…
Profit numbers were low so managers banned the use of colour printing. They saved money in the short term. But nobody understood what the grey scale charts and presentations meant and they were ignored. This led to reduced sales and — in turn — lower profits. So they had to cut more costs…
Other fertile areas to create cost cutting spirals include:
- training
- purchasing
- finance
- staff canteens
- service desks
- bug fix programmes
- pay rises
Unique characteristics
With a little care and attention managers can persuade most cycles to spin up as well as spiral down.
Cost cutting spirals are unique. They only head south.
Alternatives
The more you cut costs the more cost run away from you. Try building capability instead.
Post Script
Reference the colour printing…
I kid you not, I have experienced this one, I had to sweet talk the Ops Director’s P.A. for access to the colour printer. Mind you, they still ignored my presentations.
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Read another opinion
Image by Joe Higgins
Been there too. Managed the corporate services department during “cost-cutting” and could only allow requested color jobs with the V.P.s signature. No exceptions. All of us in management took 5% pay cuts, along with other moves described above and about 8 months later we saw the fruits of our sacrifices when they closed their doors for good.
Tragic Phil, I bet you were delighted.