Cost cutting will not solve all of your problems!

As a shareholder, I sit here and shake my head as one of the companies in my share portfolio informs the investment community of their new cost cutting initiative. Cost cutting is a genuine strategy for making the numbers in a company, there’s no doubts about that. But so many companies destroy themselves in the long run by focusing entirely on costs, and never recognising the real problem that exists within the organisation.

Cost cutting in business can be likened to liposuction in the health industry.

My extremely overweight friend Mark wants to lose about 20 kilograms as fast as he can. So he follows the advice of his doctor and undergoes liposuction treatment. Does he lose weight, you bet he does, and faster than anything else he’s ever tried.

The same thing occurs in business. Cost cutting rapidly removes the fat and the numbers shift closer to the desired outcome. Shareholders are happy, CEO is happy, but the employees hate every moment of it.

Here’s the problem.

Mark loses his weight and gets the goal, but he never changed his thinking, beliefs or the behaviours that created the problem in the first place. Gradually he goes back to his old weight and wonders why he can’t maintain it.

In the business scenario, the thinking that created the financial problems in the first place remain.

If the thinking and paradigm behind the problem does not change, there is no way you can create a different situation and sustain it over the long term.

On top of that the process is usually so painful, employees hate it and they quickly develop a strong negative association with company wide ‘improvement initiatives’. Now change becomes a challenge because of the perceptions that permeate the organisation.

We tried business improvement but it failed!

I’ve had many business leader’s tell me they tried business improvement as a proactive initiative to get the business on track but it didn’t work or it didn’t produce the numbers they expected.

My observation has been that most organisations today are rolling out initiatives such as Lean and Six Sigma with a 1980s mentality, and making the same mistakes that killed TQM. Most try to reinvent the wheel, few understand how to integrate it into an operating system of work, few get it right and they erroneously blame the initiative or the methodology as the cause.

This is exactly what the company I have invested in has done, so I know it’s time to sell my shares and get out for they will never be remarkable in any sustainable way.

Here’s the situation we want for a company to be truly remarkable.

1. All employees are engaged to a level of willing participation in cost minimisation – they recognise the value in hitting the numbers for all stakeholders

2. Employees are totally motivated to constantly improve themselves and their work, not just go to work and get through the day

3. Change is positive, necessary, and something everybody can contribute to – employees do it to themselves, it does not get done to them (there is a big difference)

4. Time is expanded, not compressed, and everybody works at the most appropriate level in the organisation

5. Less bureaucracy, greater trust, higher levels of accountability and lower levels of decision making

To standout in business today as a leader, you must learn more about these topics, particularly in regards to the shifts in paradigms necessary to thrive in business today.

Until the next time we catch up, take care, engage your people fully, and enjoy life to the fullest. I’m off to find a company that is truly remarkable to buy shares in.

George Lee Sye