As we near the end of 2009 which has been a very difficult year for employers and employees alike, I am taking this opportunity to list the Five Most Commonly Used Cost Reduction Tactics for 2008 and 2009.
Many businesses have applied more than one of these tactics and generally in this order.
Reduce discretionary spending (e.g. T&E, overhead, IT spending, etc.)
Freeze and/or reduce compensation (e.g. wages, salaries, bonuses, 401k contributions, insurances, etc.)
Layoff employees
Delay and/or cancel capital expenditures and/or investments
Cut spending on marketing, sales & product development (R&D, advertising, travel, promotion materials & events, etc.)
Everything else
Which of these have you used?
If you used any of the first five, you must be prepared to fix the problems they have created if you expect to prosper when the recession ends.
Did these tactics achieve the goals that were expected?
Results are often less than expected and most of these tactics will not result in sustainable cost reduction. Emergency cutbacks are useful for cutting cash outflow but unless you have made structural changes to the way your business actually operates, these are not sustainable.
A significant proportion of companies that have cut their costs in a downturn by cutting headcount find that their costs return and are actually higher after the downturn.
The most successful companies engage in strategic cost reduction before the downturn and change the way they do business to become even more efficient when business is bad.
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