Why is efficiency, cost cutting and revenue generating more of a focus in tough times?

I was recently asked “Why is efficiency, cost cutting and revenue generating more of a focus in tough times? Shouldn’t this be good business practice ALL the time?”

This is my answer:
In difficult times, depending on your sector, growing the top line organically can seem like very hard work, even impossible. This means that management teams tend to see cost reduction as the only viable way in which to deliver an improved bottom line.

In past dips in the economic cycle, the availability of capital has been (relatively) good. This has enabled some businesses to ‘buy’ top line growth through acquisitions, dominant mergers etc. In today’s environment this is much tougher to achieve leading again to the focus on cost reduction.

To answer the question directly, yes, of course “efficiency, cost cutting and revenue generating” are all areas which should be addressed by management in good times and bad. However, for the reasons stated above, efficiency, cost reduction and process improvement are all receiving much more attention at the moment.

In the work I do on cost reduction I am receiving a lot of interest and enquiries at the moment. What seems to be happening is that management teams have delivered the ‘easy’ cost reductions themselves but still need to find more. This leads them to seek external, specialist help to squeeze the extra savings out.

Thankfully this is possible to do. Using my own Cost Reduction Method, I have regularly delivered additional savings of over 15% on cost areas which have already been ‘reduced’.

 

Losing experienced people

Do you believe that making experienced staff redundant would help your organisation achieve cost reduction goals? There are many arguments for and against this stance and it can be a tough decision when a company is faced with cutting their cost base significantly.

On the face of it, the last to go in an economic downturn situation should be the highly skilled, experienced resources as they will (should) be:

  • of great, demonstrable value to the organisation
  • and would cost an immense amount to replace when things get better

However, if the company has downsized, unlikely to grow to the same level again and clearly has a staff cost which is too high for its size then action must be taken or the business will eventually die.

I see many companies who suffer through not taking decisive action on staff costs when they should do. It is better to have retained some highly experienced manpower than for the business to fail and no jobs.

The best case scenario is of course that the business turns around and you are soon back to recruiting with ‘Interview in Progress’ signs appearing regularly at your office!