December 30, 2008

Cut or Run?

Cut or run? That sounds like the kind of question you might hear during a Presidential debate. But this has nothing to do with “staying the course” or “raising the white flag of surrender.”

It has to do with managing your business, particularly in tough economic times. What I’m getting at is whether it’s better to focus your efforts on cutting expenses or on running after every bit of new business that’s out there.

Should You Cut or Run?

The predictions are frightening, the reality is sickening. A tracking graph of the recent performance of the world’s stock markets looks like a real-time image of your kid playing with a yo-yo.

The bankruptcy of Lehman Brothers, the collapse of Bear Stearns, the near collapse of AIG, the failure of Washington Mutual, the $700 billion bailout package, the automakers' bailout: well, you’ve been reading the headlines. Maybe you’ve been living the headlines. Even if you’ve done nothing but glance at the quarterly statement on your retirement accounts, you’ve shared in the experience. It's difficult to find credit, venture capital is scarce, and many businesses—perhaps your customers’ businesses—are about to start cutting back on discretionary spending. It’s enough to make you want to collect firewood and hunker down behind the desk in your cozy corner office for a long, cold winter.

What to do, what to do? Should we focus on cutting costs as much as possible, driving every shred of waste out of the operation? Or should we focus on winning as many new deals as possible, throwing ourselves into business development with all the energy we can muster?

As you can probably tell from my picture, I’m old enough to have lived through a couple of recessions in the past. In each of those downturns, the money people took over and started cutting—payroll, benefits, capital projects, energy consumption, raw materials, anything and everything that might show up on the balance sheet as a cost of doing business. Wall Street tends to like cuts. Just ask Al Dunlap.

It was during one of those earlier recessions that the colorfully nicknamed Chainsaw Al Dunlap first gained notoriety as a uniquely enthusiastic and ruthless job cutter. Stock prices soared as he slashed jobs and shuttered whole operations. It turned out, though, that Chainsaw Al’s cuts really weren’t as effective as they appeared, at least at Sunbeam, his last stop. It turned out he had also engaged in more than a little hanky-panky with the books to inflate earnings reports. As a result, he agreed to pay $500,000 to settle SEC charges he had defrauded investors, agreed to pay $15 million to settle a class-action lawsuit from shareholders, and agreed never to work as an executive at a public company again. Oh, and Sunbeam went bankrupt.

Admittedly, Chainsaw Al is the worst example of dealing with a crisis by mindlessly cutting jobs. But even without the whiff of fraud in the air, cost cutting alone seldom produces positive results. During the recession of the early 1990s, the Kepner-Tregoe consulting firm analyzed the cost-cutting behavior of more than 300 executives. Among other findings, the study found that executives who implement aggressive cost-cutting programs were four times more likely to cut costs again, but even after the second round of cuts still didn’t rate their attempts as successful.

The problem was that they were making blanket cuts—“Ten percent of the total workforce, no exceptions, Bumstead!”—rather than looking for ways to drive waste out of the system. Across-the-board cuts neglect to look for opportunities to achieve growth or at least lay the foundations for fast growth when conditions improve. Customer service, R&D, and sales are particularly damaged by that kind of an approach—the very areas that are likely to yield big dividends downstream.

An economic downturn is frightening, but it can also be an opportunity. People are eager for hope and open to change. As a result, a recession is a great time to begin initiatives that would have provoked fierce resistance in better times.

We’ve talked for years about proposal automation’s value in driving waste out of sales. Just last week I spoke with a senior manager at a major IT firm who admitted that his sales force had very few tools to help them manage deals and write good proposals. In fact, he thought they could probably handle a much larger number of accounts if he could take away a lot of the time-wasting administration that they had to do. So isn’t it possible that investing in the tools that make them more productive and eliminate a major source of waste be as smart as cutting jobs?

Cut if you must, but also invest in the tools necessary to run after more business and close it faster. Focus not merely on reducing headcount, but on reducing complexity and waste. If you’re interested in not merely surviving the current economic downturn, but actually thriving, take a look at your operations. Cut the waste, not just the people and resources.

If you’d like to explore how you can cut waste and increase productivity in your sales organization, call us. We have proof that, on average, Sant Suite customers realize a 29% win rate improvement and create sales documents 36% faster. See a demo of Sant Suite at

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