After the earthquake of the pandemic, we’re now waiting for the tsunami of the recession to hit shore. So, if you’re like the business leaders that I’ve been talking with, you’re currently working out how to rapidly cut costs across your organization.
Cost reduction alone, however, will not secure your financial survival. Worse, the evidence from previous recessions is that a focus on cost reduction inhibits companies’ ability to bounce back from the downturn.
There are three problems with an excessively aggressive focus on cost reduction at this time. First, you’re most likely to target the ‘easy-to-cut’ costs, such as training, marketing and losing staff through voluntary redundancy or similar schemes, rather than ensuring that the ‘right’ costs are reduced. Second, once the recession is over you’re no better off. As you grow again, you simply add the costs back in. And third, you may actually increase costs to a higher level during the upturn, as competition for top talent inflates salaries, for example.
The research that I’ve reviewed recently (see my paper, Powering Through the Recession, below) has shown that a focus on improving efficiency trumps cost reduction both through and beyond economic downturns. This may require up-front investment in new systems, equipment and facilities, but it ensures that you’re delivering higher margins during the upturn. What’s more, colleagues appreciate your commitment to productivity improvement, rather than just laying people off, and morale, organisational engagement and productivity tends to be higher.
Cost reduction is both sensible and inevitable, but you will maximise your chances of both surviving the recession and thriving in the recovery, if you focus on improving operational efficiency rather than just cutting costs.
What’s the balance of your focus currently?
Off The Record: The River by Bruce Springsteen
I got a job working construction for the Johnstown Company
But lately there ain’t been much work on account of the economy
Now all them things that seemed so important
Well, Mister, they vanished right into the air
Now I just act like I don’t remember, Mary acts like she don’t care
What’s Your Post-Covid Business Strategy?
Find out how we’ve helped Mentholatum, the owner of Deep Heat, to re-focus their strategy, identify new growth opportunities and get on the front foot to succeed in the post-covid world https://morgancross.co.uk/business-rocks/business-rocks-the-unwritten-future/
“In just a few short weeks, Stuart helped us to cut through the uncertainty created by the pandemic and create a new, refreshed strategic plan that will enable us to rapidly bounce back from the downturn and accelerate the growth of our sales, market share and profits.”Rob Yateman, Managing Director, Mentholatum UK
Coronavirus White Papers
I have written three white papers to help business leaders respond to the coronavirus pandemic and crisis.
Powering Through the Recession
How to grow profits and lead your markets through the coronavirus economic crisis
Agility For Life
The crisis has led to faster, more agile decision-making and action across businesses. Applying six key principles can help leaders embed these changes to create ‘agility for life’
Succeeding Beyond The Coronavirus Pandemic
If you want to succeed in the post-Covid world, you need to plan and act fast bow to reshape your business to the new realities and opportunities. Succeeding Beyond the Pandemic gives you a clear, 5-step process to reshape your strategy and accelerate your success.
© Stuart Cross 2020. All rights reserved.