No company can succeed by cutting expenses alone. But the practical necessity of today's world is cut, cut, and cut some more.
Yes, we all should have been smart enough to build sufficiently robust measurement capabilities before the dramatic assault on our budgets began. Yes, we should have put some water in that bucket before the fire consumed so much of the house that marketing built.
But we didn't. So where do we turn once all the "fat" has long since been trimmed and all that's left is muscle and bone? And how do we break the downward spiral of cut, cut, and cut some more?
Here are some ideas on what to cut—and what not to cut.
What to Cut
First, get your head out of the emotional sand. You've lost the battle over the power of Marketing to drive the business in the near term. Don't let disappointment cloud your future. Suck it up, look ahead, and don't take it personally.
Second, take a step back and define the objectives for making smart cuts:
- Achieve the target reductions the CEO is asking for (most people stop right here).
- Support the company strategy for competing successfully.
- Conduct a thorough and unbiased analysis of all options.
- Preserve your credibility. Live to fight again another day.
If you're not balancing all of these objectives, you'll suffer death by 1,000 cuts yourself.
Third, do not cut everything proportionately. Be selective in what you cut and what remains. Cutting across the board strengthens hidden weaknesses while weakening strengths.
Fourth, after cutting the easy stuff (e.g., travel, contractors), the next thought is often to cut longer-term payback initiatives, like branding and innovation, and to retain things that bring short-term benefit. Doing so makes sense if you're running out of cash and burning furniture for heat. But if you expect your company to survive over the next few years, then evaluate the net present value (NPV) of the expected payback on each area of investment and continue to invest (albeit at lower rates) in those offering the most attractive returns. Cut projects with less-attractive returns, regardless of the time horizon. Consider opportunities to capitalize projects so costs can be amortized over several years.
Fifth, frame your cutting based on your strategy for competing effectively. Think about the relative value/importance of particular customer segments; product groups; channels; or even geographic regions. Not all customers or channels are equal, nor are they of equal value to you. Consider the expected returns of a dollar invested in each one and then rank them highest to lowest. Cut ruthlessly from the bottom. Starve weak projects to feed strong ones.
Sixth, engage influencers in Finance, Sales, and strategic business units (SBUs) in your evaluation. You have nothing to gain by being an island now.
Seventh, learn to make educated guesses when you don't have data or time to do in-depth analysis. There are dozens of ways to credibly apply judgment to get to sound strategies. Familiarize yourself with some of the more popular ones, such as Dephi techniques and Monte Carlo simulation.
Finally, recognize that the impact of your cutting decisions depends upon what your competitors do. If they cut expenditures, you may be able to accomplish just as much as before while spending less. But what if they cut less? Or what if they actually increase spending? Exploring possible scenarios with decision trees will help illuminate which types of cuts are smarter, and which leave you open to substantial competitive risks. You may need to cut anyway, but at least everyone in management will better understand the risks.
What Not to Cut
Assuming you're not quite in "burn the furniture mode" yet, look down the road a bit and try to anticipate where you actually might need to spend more to compete effectively before you start cutting:
- Have you sufficiently reinforced your relationships with profitable customers? Now may be the time to invest in retention, as acquisition gets put on the back burner. Acquisition costs often require a period of time to recapture, and you may not have that luxury.
- Your customers and their needs are probably changing in response to the economy as well. Is your research effectively capturing their evolving wants, needs, and value-calculus? If not, you may need to spend a bit more on this issue before you can cut back.
- Is your brand value proposition strong enough to withstand the challenges you can reasonably expect from your current competitors? Have you left your flanks open to new competitors with business models built on later technology platforms or lower-cost structures? You'll need something other than price to compete on, unless your balance sheet is so strong that it can withstand a protracted pounding.
- Is your message strategy resonant and relevant? If not, spend to tighten it up. Mix-shifting from traditional to new media may lower per-exposure costs, but you won't improve engagement unless your message is right for the times.
- Have you considered the key questions you'll have to answer in the next planning cycle and begun to put the necessary testing and experiments in place to answer them? Or are you expecting to walk into the next planning session with charm and wit alone?
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A little forethought in these areas may help you break the downward cycle of budget cuts by actually demonstrating the value of having your finger on the pulse of the customer, the market, and the business overall.
Finally, present your findings with passion, but not bias. The mantra of the moment is "having run many options by the good people in Finance and Sales, we all feel that the smartest course of action is..."
All is not bad. This is an opportunity to shed the excesses that the good times permitted. Just don't wait until the cutting is over to start planning for better days.
And, by the way, now is exactly the time to begin building that measurement capability you really wish you'd had over the past few months.