A cost cutting strategy is a bit of an oxymoron. Jules Goddard talks about this in his July article of the same name from MLab.
Think about how silly “cutting your way to growth” sounds?
Some common issues with cost cutting are:
- it is bounded: once you have cut costs to zero – there is nowhere else to go!
- it is demoralizing: “do more with less” … cost cutting almost always affects the employees and is very often done across the board. The leaves even efficient organizations suffering the consequences of a cut.
- it is narcotic: it provides instant pain relief. But like narcotics, the relief does not last for long. It is also addictive (“it worked last time so let’s go for another round”)
- it is easy: just adjust a few numbers on a spreadsheet and voila, a 10 or 20% increase in profits.
So should you never cut costs?
The answer is not that easy… The answer is … yes and no 
. Or as my lawyer friends are fond of saying … it depends.
A better way to look at the problem is not where to cut costs, but how do you want to spend your effort, your time and your money.
There are almost always opportunities to spend your money in better ways than you are today!
- You have to make sure that all of your spend is going towards value adding activities.
- You have to make sure that it sends you in the direction of your strategy.
- You have to make sure that you get good value for your money.
Also stay away from “across the board” cuts or increases. Think about where the money will do the most good. Rarely are un-targeted changes of 5% or 10% effective for anything!
Most of all, think about how you can grow your revenue picture – both now and in the future – spend the money there!
