Cost cutting is like dieting. If you do it sporadically, not only is it ineffective, but in the long run, you’re likely to put on more weight.
Likewise, sporadic corporate belt-tightening is more likely to result in production backlogs, low-quality output, missed shipments, angry customers and diminished employee morale. Over time, it’s going to cost the company far more than the few dollars saved from a one-time cost-cutting exercise.
So what’s the alternative?
If you agree cost cutting is like sporadic dieting, then you’ll see why you should resist setting a pounds-lost target and, once you’ve achieved it, celebrating with a banana split topped with whipped cream. You need, instead, to view dieting as a permanent change in lifestyle.
But if you think a sensible diet—or, for that matter, a sensible cost-cutting program—is tantamount to “three squares a day of raw celery,” then it’s unlikely you’ll ever permanently change your habits. Instead, you’ve got to think of three satisfying portions a day of tasty, wholesome food. Translated to cost cutting, that means you’re going to have to create and then sell a new culture to your management—and who better to undertake that project than any organization’s accountants.
Usually, when a company announces belt-tightening, word comes down from on high that all managers are expected to cut their budgets by 5%. If you think about that strategy, you’ll have to agree it makes little business sense. For example, division A, which produces 80% of the company’s profits, has to trim its costs by the same percentage as division B, which generates less than 10% of corporate profits. What will that 5% cut do to division A’s profit-making ability? Meanwhile, division C, on the brink of introducing a great new product, suddenly has to trim its budget and thus shrink its marketing plan at a critical time. You can bet the staffs of divisions A and C are not only going to be demoralized, they will be questioning the wisdom of top management.
What’s missing here? Simply put: It appears top management lacks a practical long-term plan—in other words, a real vision for the future. Or if the company already has such a long-term plan, the question is: Are its budgets a true reflection of that plan, or does the company just give lip service to the vision?
The Power of Picking a Replacement
Benefit: The newly promoted person has a vested interest in the new subordinate’s success, acting as coach and mentor.
Turn Mistakes Into Something Useful
Reason: No one likes to make a mistake. In fact, the fear is so great for many, they hesitate making decisions or trying something risky because they’re sure they will fail and look stupid. As a result, many managers play it safe, and that reinforces a corporate culture that resists innovation and challenges.
A smart (and confident) leader can help his or her staff overcome that psychology. When colleagues or employees make an error, don’t rag them about it; instead share your own mistakes with them, focusing on what you’ve learned from making them. Reassure workers that errors are part of professional growth and that it’s rare to learn without making one.