In 2020, a global retail giant, faced with declining sales and mounting costs due to economic uncertainty caused by the pandemic, decided to resort to a drastic measure to cut costs - slicing their workforce. The decision resulted in mass layoffs across all departments, regardless of their contribution to the company's bottom line. The move sparked outrage among employees, customers, and stakeholders, who accused the company of short-sightedness and lack of vision. The company's revenues continued to decline, and it lost significant market share to its competitors. In hindsight, it is clear the company could have avoided this fate by taking a more strategic and targeted approach to cut costs.
Unfortunately, many companies resort to mass layoffs to cut costs, especially when preparing for a recession. However, this approach is akin to the drastic measure of chopping off different parts of your body to lose weight. It may seem fair to distribute the cuts across all departments, but this approach ignores the real issues that plague the company's processes and operations.
To avoid such drastic measures in times of economic uncertainty, it is essential to take a more strategic approach and look at the root causes of the problems. Just as losing weight requires a targeted approach that involves looking at your diet, exercising, and making systemic changes to your lifestyle, companies need to take a similar approach to their business processes.
The first step is to gain a proper understanding of how the business operates on a day-to-day basis. This requires more than just a superficial understanding of the processes but delving in deep to understand how different departments interact and what the critical bottlenecks and friction points are. This provides the necessary insight to pinpoint areas of opportunity and identify more lasting changes that can be made to the operations.
Next, companies need to prioritize more strategic and impactful changes, such as digitization and AI. These changes not only reduce costs but also increase efficiency and enable the company to remain competitive in a rapidly changing business environment. By modeling the benefits of taking action, companies can ensure that they are not leaving money on the table and can get a better understanding of the intended consequences of their actions.
It is also important to seek consensus and collaborate with stakeholders to understand the implications of the proposed changes. This ensures that the changes are safe, lasting, and will not create unintended consequences that may harm the business in the long run. Proper collaboration and visibility of the impacts on the future state of the business are essential before committing to any changes.
In an earlier blog, “Cost reductions without proper insight could create more harm than good: How to avoid these pitfalls,” we referenced an article from Gartner, “7 Cost Reduction Mistakes to Avoid,” which outlined ‘blanket reductions‘ (i.e., mass layoffs) as one of the mistakes to avoid as they can cause serious unintended consequences like demotivating employees and service degradation. All the cost reduction mistakes referenced by Gartner in the article can lead to a suboptimal outcome that can harm the organization's long-term prospects. By contrast, a targeted approach to cost reduction can avoid these ‘pitfalls’ and achieve better outcomes, including reducing costs, sustainably, improving process efficiency, and increasing customer satisfaction.
So, while it may seem easier to resort to mass layoffs to cut costs, this approach ignores the underlying issues that are plaguing the business. It is critical to target the reductions and ensure that they are safe and lasting. A more strategic approach that focuses on improving business processes and operations is essential to avoid the corporate equivalent of chopping off limbs.
With BusinessOptix, decision-makers can gain a comprehensive view of how their organization operates, including its processes, people, systems, and data. By modeling the current processes, they can quickly identify areas of inefficiency and waste, reduce complexity, optimize processes, identify AI opportunities and improve productivity to achieve cost savings while improving customer experience. By taking a targeted approach to cost reduction, organizations can emerge stronger from a recession, with a more streamlined and efficient operating model that can withstand future shocks. Decision-makers can then better understand the benefits of taking action, explore unintended consequences, and seek consensus through proper collaboration and visibility of the impacts on the future state. By using BusinessOptix, organizations can make data-driven decisions that are based on a clear understanding of their current reality, avoid making harmful cuts, and achieve sustainable cost savings.
Companies need to take a more strategic and targeted approach to cut costs when preparing for a recession. This approach involves gaining a proper understanding of how the business operates, prioritizing more impactful changes, modeling the benefits of taking action, seeking consensus and collaboration, and targeting the reductions to ensure they are safe and lasting. By doing so, companies can avoid the drastic and harmful measure of cutting their workforce and ensure that they are well-positioned for the future. BusinessOptix can help organizations avoid knee-jerk reactions, the corporate equivalent of chopping off body parts, when reducing costs.
https://www.gartner.co.uk/en/articles/7-cost-reduction-mistakes-to-avoid