September 24, 2009

Think strategically when cutting costs

In this 5½ minute talk, Gary Hamel challenges that cost cutting should be done by cutting costs by a certain percentage across-the-board because it is easy. As Mr. Hamel mentions, easy is usually not a good criteria for making a business decision. What Mr. Hamel mentions, fits well to what I read in this NZZ article: A savings program is not equal to using “the lawn mover method”, i.e. cutting the grass equally all over the place and not setting any priorities.

In this interesting 11½ minute Harvard Business interview, Mr. Cesare R. Mainardi, Booz & Company, explains that the challenge is to invest in the activities which cause success and to be as lean as possible in everything else. Reading the strategy+business article titled "Cut costs, grow stronger", an article written by Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi, I was not least struck by the following extracts – including the exhibit inserted below:
"Releasing what isn’t essential in difficult times will give you greater clarity of purpose, and will expand your critical capabilities for use in good times. Every day, that more accurate self-definition will ensure that every investment decision, every portfolio decision, and every operating decision reinforces the coherence of your strategy. Yes, that will help in terms of cutting costs. But it will help even more in overall strategy."

When reflecting on the challenging topics about cost cutting mentioned above, please do keep in mind that the minute you start talking about people as costs, negativity will take over. In other words, treat people as contributors. And speak frankly with people, who work for the company, about the economic realities your company is facing, while you also explain what they can do to help. Source. In this regard, I learned by watching and listening to a 14 minute interview with Joe Knight, which I embedded in this blog posting, that it’s a good idea to help everyone to see what’s going on in the business financially.

How is cost cutting done at the companies, you work for?
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