Cutting costs is a simple way to improve profitability, in theory at least. However in the real world of a dynamic marketplace, imperfect people, unforeseen circumstances, collateral damage and unintended consequences, the spreadsheet seems to lie.
No one has ever cut their way to sustainable profitability. Then when the result isn’t met, a new round of cost cutting and the inevitable and perennial restructuring continues. The axe is not your friend.
How do we overcome this somewhat inevitable cycle?
Get more than the accountants on the job. The pure financial perspective is still only one view, albeit important. Whilst keeping costs flexible and under control is an important factor; investing in people, future capabilities, and bolstering your value proposition through innovation and service, are what will ultimately grow your business.
So it’s not “either or” it’s “both and”; now and the future, costs and investments, people and profit. A broad stakeholder perspective creates a more balanced and sustainable organisation.
In addition creating a culture of innovation will add value and growth; sustain momentum and enhance your business model in an increasingly dynamic market. Bear this in mind as you cut costs. This kind of culture requires less management and lower costs to run. It is usually more like a cooperative and lean eco-system rather than a costly inefficient bureaucracy.
It’s the disciplined focus on clearly identified short, medium and long-term agreed and well-communicated priorities that should drive the appropriate allocation of resources. The more focused you are, the less distracted, the less waste is consumed. Appropriate fiscal management is absolutely needed; the blunt, unthinking axe is absolutely not.