In a downturn, timing and focus are critical. Some managers think that they can wait until it is over; when that doesn’t happen, they find themselves late to recover and scrambling to catch up, which leads to an expensive recovery and is not always possible.
Others take a tentative approach by making small, uncoordinated cost cuts across the board hoping that total savings will add up to the desired level of performance. Unfortunately, these cuts never get to the drivers of cost; they delay improvement; cost reduction doesn’t stick, and eventually, costs creep back up over time.
Other managers opt for short-term solutions, including squeezing suppliers, higher operational efficiencies, reduced spending, tighter cost controls, gradual staff cuts, and other immediate fixes. In the best cases, these cost-cutting programs provide band-aid solutions and delay real improvement. In the worst cases, they cut the wrong areas and set the company further back.
Finally, a company that implements the right levers in two years versus one year makes a significant blunder. It will continue to falter and miss the timing. By the time other companies will be recovering out of the slowdown, the company will still be playing out its cost reduction program.
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Do you think that the downturn won’t last? If not, revise your strategy and your investments in light of slowing revenue growth. Take a comprehensive and aggressive approach. Shorten your action plans into a tighter time window; significantly advance some initiatives, and postpone others. This approach not only will help your company protect against the slowdown, but it will also strengthen your competitive position and ability to seize opportunities as they emerge. Think on these things:
How much does your company need to reduce cost?
What is your trigger point to take action?
When you get there, how will you reduce your cost structure?
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