Typical Cost Cutting May Cause Setbacks During a Recession
When Covid-19 began ripping through the US, senior management across the manufacturing industry evaluated and implemented cost cutting efforts to protect their businesses.
Executives looked to the typical cost-cutting areas, such as:
- Employees/ management
- Supplies and suppliers
- Telephone and electricity
- Loan financing
However, this type of reactive cost-cutting is dangerous because it forces a company to hunker down, focus on basics, and ultimately push off innovation. Alternatively, rather than cutting costs reactively, some companies pivot their operations instantly to take advantage of market surges—cutting costs everywhere except those supporting the surge in business. However, if the organization survives to experience the long-term impacts of these measures, they may find that they’ve hindered growth and reduced profits.
With a few vaccines now approved and more on the way, the nation and the world can see the light at the end of the pandemic tunnel. Focus now turns to rebuilding businesses by incorporating strategies that take into account what we’ve learned in 2020. In times like these, the best and often most successful businesses take a more strategic cost-cutting approach.
Strategic Cost Cutting Initiatives
Many successful companies embrace cost-cutting as a continuing process of aligning a company’s expenses with its strategic objectives. A recent Forbes article outlines these stages:
Define elements of cost, rating them on a scale depending on how they support the company’s strategic aims.
Align these elements with your strategic effort over multiple years.
Rally everyone on staff to cut cost elements that do not provide direct support to your strategic objectives.
As a company’s strategic priorities evolve, their cost-cutting priorities will change as well - this means that organizations must continuously recover costs from the initiatives that were deprioritized or diminished to invest in their futures.
Cost Cutting After Covid-19
If we’ve learned anything from the Covid-19 pandemic, it’s that companies function in a highly intertwined global market. We now understand that our actions—even our inactions—can impact people and organizations all over the world. Independence, on both the personal and organizational levels, is an illusion.
We need to abandon the independence illusion and accept the need to do collaborative strategic planning, including cost-cutting. This means working with suppliers and customers to:
Define cost elements in your relationship
Examine how they support your common strategic aims
How to work together to recover costs to invest in the future.
This is the approach the Bovie team has taken with our suppliers and customers over the past several years. An example of this is our routine evaluations on cost cutting measures when fulfilling orders on printed parts. [Our customers may want to check out “Getting the Best Deal'' on Bovie’s Customer Portal for a list of 20 or more cost elements to consider.] As long as we align our cost cutting measures with our collective strategic goals, we not only set ourselves up for future success, but we also help pass that success along to our customers and suppliers. This strengthens the industry as a whole and allows businesses to become more agile.
Author: Gary Shirk - President, CEO and Owner