The world is going through some difficult times. Most of the Middle East is fighting a war, rising terrorism, refugee crisis, global warming and the Politics of Fear is leading to dangerous Polarization.
In this Global Economic Crisis, majority of the top executives feel the need to cut cost but only 50% of executives feel that by doing so it has helped the company grow. Yet cutting cost continues worldwide, most of the time it does more harm than good.
People who are experts in cost cutting believe that every rupee earned through revenue contributes to profit, and each rupee you save goes directly to the bottom line. So we desire to improve financial performance or to change processes is never simple, there are bound to be some mistakes and on the other hand one can save money without adversely impacting the customer and provide value all around.
I believe when Finance, Strategy or Growth departments drive savings, it is often done without connecting to the people on ground, which affects employees and customer satisfaction as well as overall loyalty.
It is often seen that while cutting cost it is the back office staff which gets reduced assuming that it will not affect revenues, while the front line sales people are retained. Support Services (Back office)are very complex and important function to satisfy your customer. It may severely impact customer perception and may also affect its buying behavior.
It is also observed that companies with the highest customer loyalty also have the highest employee loyalty. So cost cutting sends a message to both.
When a company decides to cut costs, increase margin and raise revenue, everyone is given a target to achieve and here the employee spend most of his or her time on cost cutting rather than on their regular jobs. Is the Trade Off Acceptable?
Also, during such cutting exercises a disconnect between Finance, Commercial, Purchase and actual business gets revealed. One department is trying to achieve their target and by doing so has hit the Business Model. Now, the management realize this, they try to circumvent it but by adopting other measures.
Often companies to cut cost, put a freeze on Hirings and transfer people where they are required more. It is often seen that during such times, sales people are seen doing back end jobs like report making, tracking orders and developing sales material. This then affects the connect with the customer and they stop coming back to the organization. These sales people are more expensive than a back end employee and ultimately you have an organization with expensive support staff.
There is a tough lesson here; you cannot save your way to prosperity when you start cutting cost without considering its impact on employees, customers and overall loyalty than it is only a short term fix and a long term loss.
An external Consultant is hired to advise an organization on how to cut costs, downsize employees and improve efficiency. These consultants charge a bomb by the way, go around talking to everyone and finally give solution, which was already there.Since, the organization has already hired someone and has to justify its cost, an action plan is made and cost cutting is achieved. But very soon related problems startcropping on efficiency, quality etc. Costs that were successfully taken out via cost cutting programs tend to creep backin before long, making the entire effort an expensive exercise in futility.
In times of uncertainty, a forward looking company should use cost cutting exercise to align with its business strategy, which should propel the company in future growth and transformation.