Friday, December 19, 2008

Cost Cutting Balance

Cost cutting, cost reduction, consolidation or cost management have become central planning topics in all competitive markets. Most companies have trimmed all the fat and are working “close to the bone.” New companies have either gone out of business or have cut back on plans, dramatically changing the business model with which they launched. An established company in a maturing market is likely to see the best return from cost cutting.

As we have written many times, having the right plan is critical for all companies.

While cost cutting and basic survival is at the top of each day’s agenda, it has to be balanced to some extent with spending/investments that will grow the revenue line. This is typically a mixture of selling more to existing clients (market penetration) finding new clients both locally and internationally (market development) and extending your brand’s equity creating new profitable products and services (product development). This isn’t new but is almost completely overlooked with the focus on cost cutting. Success in managing the costs can improve cash flows which can be used to invest in building revenue.

The news is full of stories about companies that have sought a major, single solution, with the obvious “nuclear” option of outsourcing and/or dramatic cuts in personnel. This has surface advantages, but often creates crucial competitive problems such as:
• Undermining core competence
• Decreased speed of response to market demands
• Increased problems of quality control
• Decreased customer service and resulting reduced customer loyalty
• Elimination of product support and upgrades

Often, companies by attempting to make big changes miss the advantages of applying a continuous cost management discipline. A step by step approach will create an environment where cost management is continuously incorporated in company decision making. By making cost cutting and then cost effective spending part of the culture, the resources can be much more effectively utilized to drive revenue on an on going basis.

We recommend developing the right plan, of course. The plan has to have a balance, using the funds to drive revenue. Without the revenue, the company is doomed.

Let us know how we can help. We are experienced in helping companies thrive and not just survive.



John Maver
Maver Management Group
(925) 648-7561
Maver Management

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