One of the most soul-destroying events that can happen to a company is for a bean counter to be appointed as CEO with a vision that involves cost cutting and not much else. While I am one of the first to hold true to “In God we trust, all others bring data”, I have seen too many companies damaged from a CEO overly focused on cost cutting. A CEO that is dumped within a few years.
Don’t get me wrong. A focus on costs is important and sometimes dramatic cost cutting is essential, however, as with any strategy if you don’t put some science behind it you are at least uncertain of the result and at worst you get something you never planned to have. Usually it’s some form of calamity because staff were over stretched and stopped doing one thing or another. Even more horrific is when staff break cardinal rules to get the job done.
Spending vs Investing
Last week I wrote about spending vs investing. It is when you throw money at a problem in the hope you solve it rather than invest wisely in the problem with an expected return on your investment because you have the right measures and levers in place to do so.
Cutting vs Creating
A CEO overly focused on cost cutting is cutting vs creating. It’s sort of the flip side of spending vs investing. Cutting based on industry benchmarks for example might make sense at first glance, however, a little investigation might discover very good reasons for the difference in cost structures. If the investigation was not conducted you may have been answering the wrong question.
The solution is to both investigate and experiment. Investigate to understand waste and inefficiencies that can be corrected and costs saved. Experiment to find new ways of achieving the same goals then invest in cost cutting and create a new cost platform that will give you a sustainable competitive advantage.