The Liability of Cost Cutting: A CEO’s New Challenge

The Liability of Cost Cutting: A CEO’s New Challenge

May 1st, 2007

When financial results don’t meet expectations, senior executives face five dreaded words that have become far too common: “We need to cut costs.” Those expectations might have been set  according to shareholders’ requirements, past performance or metrics that seemed attainable. Explanations aren’t always crystal clear. Regardless, the mandate goes out for every department
to “do their share,” whether by cutting travel, training, maintenance, engineering, marketing or people. Those who hit their targets are heroes, while the naysayers are labeled as whiners.

Budgets are set; reality sinks in later. Lower-level managers wonder how to run the business with reduced resources, but they’re forced to cut costs in order to meet their tightened budgets. The accountants are happy. But wait – the year’s end brings an unpleasant surprise: The top-line growth, revenue or profit is not there. The senior executives are scrambling for answers. The pipeline is weak and market share is falling. The knee-jerk response is to enact more cuts, and even deeper this time. It’s said that the definition of insanity is doing the same thing repeatedly and

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