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By The Numbers

Workplace Survey, Findings

1.Workers are struggling to work effectively. 

When focus is compromised in pursuit of Collaboration, neither works well.

2. Effective workplaces balance focus and collaboration. 

Workplaces designed to enable collaboration without sacrificing employees’ ability to focus are more successful.

3. Choice drives performance and innovation. 

Employers who provide a spectrum of choices for when and where to work are seen as more innovative and have higher-performing employees.

 

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IS CUTTING COSTS ALWAYS A GOOD STRATEGY?


Team_SuccessManagers often default to cost cutting as the best way to begin to regain competitiveness. However, as a manager, you incur a cost for no other reason than to pursue a strategy; and it is the strategy, not the cost, that determines the competitiveness of your organization.


Both in theory and in practice, costs tend to be treated as a bad thing. They are seen as being too high; they need to be cut; they are symptomatic of waste, excess, profligacy and irresponsibility. Consultants are expected to reduce costs, not add to them. An incoming chief executive will normally want to rationalize costs, not justify them or grow them. Competitiveness is usually defined in terms of the cost base — and the lower the better. Predator companies will traditionally want to make economies in their newly acquired prey. It is rare acquirer who is looking to grow the cost base.


 

 

Why is this? Why is there an assumption that costs are biased on the high side rather than the low side? Is there any evidence, for example, that cost-cutting strategies aid stakeholders? Do funders employ managers principally to strip out cost? Zealous cost cutting is surely a sign of a lack of strategic imagination. Stakeholders should step in and say, “Enough is enough; change the strategy, not the costs!”

 

We can argue that any cost carried by an organization is just as likely to be too low as too high. In other words, we assume that cost levels in an organization are not biased one way or another. For example, in the case of quality service management, many service levels will be set too low as too high. In the case of compensation, as many salaries will be too stingy as too generous. It is not, for example, self-evident that the CEO is being paid too much — or too little. The presumption that costs are more likely to be on the high side than the low side is simply sloppy thinking.

 

The rule for cost control should be: cut back on those existing costs that are not relevant to the strategy and invest in those costs that, if they were to exist, would strengthen the strategy. The traditional model of management has the unintended consequence of making cost cutting the default option. In the standard version, top management sets the strategy and everyone else executes it. Skilful execution is defined as the minimum cost to deliver the strategy. The only variable subject to middle management discretion is operational efficiency. It is no surprise that many managers interpret this rule to mean “the lower the costs base the better”. When pressures on margins increase, better execution implies even lower costs. “Managerialism” mistakenly has a built-in bias to interpret competition in cost terms rather than value terms.

 

The popular managerial expression “relative cost” is equally misleading. Comparing your cost with a competitor’s cost (a remarkably popular form of benchmarking) can only be relevant if both companies are competing with identical strategies, in which case the cost base is carrying the entire burden of delivering profitability. But if this is the case, the problem is not the magnitude of the cost base but the absence of strategy. The attention of management should not be focused on relative efficiency but on the need for a differentiating strategy. In short, reliance upon efficiency usually betrays an absence of strategy. The rhetoric of “operational excellence” is generally camouflage for a dearth of strategic ideas.

 

A senior management team that is unable to formulate a strategy for making wealth-creating use of the resources available to it has every right to reduce the headcount provided it starts with its own heads. Firing others simply on account of being unable to find gainful employment for them - which is the job of senior management - is all the evidence that stakeholders should require inviting these senior managers to find work elsewhere.

 

The art of management is to manage a business in such a way that the need for operational excellence, continuous improvement, cost leadership, process redesign, corporate renewal, cultural change and so on is redundant. Moreover, the declared pursuit of these objectives should count as a clear admission of managerial failure.

 

When executives reach for these remedies, you can be sure that the business has been woefully mismanaged and failure cannot be far away. You don’t manage costs, you design the business strategy and the strategy establishes the necessary cost base. Costs are an outcome of the strategy, not the goal of the strategy.