Measurement & Instrumentation

Economic Impact: Cutting Costs? What you don't see.. may hurt you!

by Donald Savant 10 May 2010
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Most companies are feeling the effects of the economic downturn. The mantra echoed around the world, "Cash is King," triggered companies to activate cost cutting measures of all kinds; budget cuts, re-organization, down-sizing, et. al. And now that there is a little uptick within certain markets, companies watch with bated breath to see if they made the right moves.

I was inspired to investigate this phenomenon while speaking with a colleague about the current selling environment and the challenges therein. "Fulfillment is becoming an issue…sales and marketing are now able to get the sale, but companies are having a hard time being able to deliver (their products or services)." For the purpose of this article, "products and services" means anything from ability to deliver on the value proposition, to order fulfillment, to new product or service innovations. Anyone that looked at this topic prior to our current downturn found the story of Home Depot from the past recession very compelling. Let me recap… Home Depot’s long-tenured knowledgeable staff (ex-contractors, handymen, and home improvement professionals) was crucial to delivering the company’s value proposition. Its cost-cutting included a reduction in these employees and the hiring of less experienced part-timers. Home Depot failed to realize the impact this would have on its ability to deliver its value proposition to its core customers, as well as the impact on its own employee culture and values, and saw shrinking customer loyalty as a result. Since then, Home Depot has re-established a foundation for continued growth, after addressing what is core to its beliefs.

Other examples exist and I could go on; however, the impact of trimming budgets truly is contextual to your particular market and business. I simply wanted to draw your attention to this phenomenon. Columbia Business School professor Rita McGrath speaks more in-depth on Home Depot and other examples in her March 9, 2009 Harvard Business Review blog entitled "A Better Way to Cut Costs." Also, there is information out there and numerous articles on "how to manage your business in a recession." Point is, companies must evaluate strategy and establish goals post-recession to avoid the unforeseen impact of reactionary, yet necessary, cost-cutting measures. I too watch with bated breath to see who made the right call, what the most successful strategies were, and who will be the winners and losers coming out of this recession.

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