Widespread cost cutting will damage organisations, says new report

Procurement professionals will be at the forefront of organisations’ new focus on cost-reduction but a new report from sourceforconsulting.com highlights the need to avoid cutting costs across the board.

The new report entitled ‘Intelligent cost-cutting’ argues that most cost cutting is ineffective because the costs creep back in. For cost-cutting to be sustainable, organisations need to understand how expenditure saved in one area can actually increase expenditure elsewhere. Crucially, they also need the support of their front-line managers, so cutting people should always be a last resort.

Fiona Czerniawska, one of the founding directors of sourceforconsulting.com and a worldwide authority on the consulting industry commented: “These people are the bridge between you and your customers. It is their attitude, motivation and commitment which will determine whether their teams – and ultimately your customers – stay with you through this recession”.

Brendan Cahill, Chief Executive of performance improvement consultants Trinity Horne, who sponsored the report comments: “Organisations focus on straight percentage cuts in costs because it is the easy option. We are delighted to be associated with this report which highlights how costs can be cut both selectively and sustainably”.

The report identifies ten critical success factors in cost-cutting projects:

1. Take a holistic perspective: make sure costs are cut in the context of an organisation’s existing business context and strategy.

2. Review the evidence systematically: under pressure to survive, people make assumptions rather than look at the facts.

3. Create value, don’t just cut costs: savings should be made in such a way that supports the strategy so that the organisation is primed to grow quickly as the economy recovers.

4. Take decisive action: once the thinking and data-gathering is finished, it is imperative to act quickly. Every minute wasted not only costs money but allows rumours and uncertainty to fester, to the detriment of performance.

5. See cost-cutting as change management: make sure you focus on your people, not just technology and processes which can look like the main drivers of costs.

6. Communicate: swift action has to be accompanied by clear communication. The reverse is usually true in practice.

7. Engage: taking a scythe to an organisation runs the risk of cutting out the heart of what people care about.

8. Do it quickly: organisations are accustomed to programmes of change which last years, but cost-cutting is different. People are far more likely to be de-motivated if the process is drawn out.

9. Measure progress: we are all familiar with the dictum that only what gets measured gets managed, and this is especially important when it comes to keeping costs under control.

10. Keep the pressure up: in some ways, implementation here is no different to that of any other project. The sponsorship and commitment of top managers are essential.

With contributions from around 30 organisations, and a case study from Virgin Media, the report examines what tends to go wrong in cost-cutting projects, how to ensure they succeed, where consultants might be useful and where they are not and includes a section on the different approaches to cost-cutting that consulting firms take.