I was talking with a senior financial leader at a very large private company the other day.  Like so many companies, they are battening down the hatches for the storm we’re all riding through.  That partly involves making cost cutting decisions and it got us talking about the challenges many leadership teams face when they are cutting costs.

Too often, she said, we end up trying to give the whole organization a haircut.  You know how it goes – we’ll ask each unit to submit a plan for cutting 10% or 20% of costs (or worse, people).  Often that directive ends up getting passed down the line so that we’re cutting a little bit of everything. It’s a “trim.”  We think about cutting everyone’s salary by a percentage or reducing everyone’s work week to justify a pay cut.  I even remember being in an executive team meeting where we talked about reducing the medical supplies in the first aid kits of the office building.  (I’m not making this up!)

Haircut Would you like half a band-aid for that nick?

My financial friend said that, of course, the right way to go about cost cutting is to do pruning instead.  Look  at the enterprise and ask, which areas of activity are yielding the most value? Which ones are most consistent with where we think we will be when the market turns around? Which workstreams should we trim, which should we cut all the way back, and which should we pull up by the roots?  Just as importantly, which should we preserve?

Pruning  That one has to go…

So if pruning is more effective, why do we so often get haircuts instead?  Here’s a starter list – and I’d love to hear back from you what you have experienced:

  • We’re too busy/in too much crisis to take the time to think about pruning
  • Pruning implies some parts of the organization are more important than others – and that’s too sensitive a topic for our leaders to face head-on
  • We don’t really have a strategy, so we have no basis for a decision

What would you add or change? Click on the comment button or email me and let me know.