Knowing How to Cut  When spending must be cut, and it's just a matter of determining where, you face a process fraught with potential pitfalls. Here's some help. In a post at Harvard Business Online, Rita McGrath highlights key takeaways from a workshop on avoiding the traps that companies often encounter when trying to cut back. Among those takeaways:
Keep an eye on the real cost of the cut. According to McGrath, Home Depot built its business with a knowledgeable, skilled staff capable of guiding customers through many do-it-yourself projects. "Firing them and replacing them with part-timers and inexperienced people looked good on the bottom line for a while," she notes, "but [it] ultimately undermined the Home Depot's fundamental value proposition to its customers."
Remember that savings [and losses] don't always appear within the same department. "Costs may be saved where the budget isn't," McGrath notes. She uses the example of an IT solution that improves the accounts payable process, [although] its cost registers as a negative for the IT department.
"Unless you have a way of systematically figuring out where investments—particularly in things like IT, HR and infrastructure/operations—are really paying off, you can go terribly wrong cutting in those areas," McGrath concludes.
The Po!nt: Make spending cuts with care. "Will you notice in the short term?" asks McGrath. "Maybe not. Will your company notice in the long term? You betcha."
Source: Harvard Business Online. Read the full post here.
Learn more about making cuts strategically with When the Budget Axe Falls: What to Cut, What to Keep, What to Grow. This online seminar introduces a framework for making cuts that keeps you and your company standing to fight another day. It's free for MarketingProfs Premium Plus Members. (Upgrade today to get access to this and all our online seminars.)
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