Most of us will have to cut costs at some time in our management career. I have managed three such restructurings, involving annualised cost base reductions of between £100k and £10m. Each time the result was a radically improved business.
However, despite the innocent euphemisms we use to describe such ‘right-sizings’, they are usually an unpleasant experience for all involved.
Here are my top tips for making the best of such a situation.
1. Do it in time
Usually cost cutting is done to preserve a company’s cash when sales are not covering costs. We don’t like cutting costs so we tend to put it off, justifying this with rose-tinted self-delusion about how things might improve.
But things often don’t improve, and delay can make an already bad situation positively dangerous. Don’t forget that cost cutting itself usually involves expense, for example redundancy payments. It also involves unavoidable delays such as consultation periods.
It is far better to act early, and preserve as much cash as possible. Act at the last minute and you will leave the company poorly capitalised and fragile.
Overdone cost cutting is bad, but costs can be added back. In contrast, underdone cost cutting can be fatal.
2. Do it once
Multiple redundancy rounds cause employees to polish their LinkedIn profiles and start having coffee with recruiters. It is ‘Death by a thousand cuts.’
Make sure you won’t need to go back and cut more, as this is devastating to morale and will make your talent run for the hills.
Cut once, cut hard if necessary, and explain to the survivors that there is no intention to do it again. But do be careful not to make promises you can’t keep.
3. Show leadership
Don’t treat yourself any differently to anyone else. If you are proposing pay cuts, make sure you set an example.
I have always been amazed at how people will make sacrifices when their leaders genuinely share the pain. Without the moral authority of a personal sacrifice, you can’t expect your team to forgo any of their entitlements.
I voluntarily ‘restructured' myself out of an organisation once, when running a major cost reduction programme. Such a gesture smoothed the process significantly, and did my career no harm whatsoever.
4. Make it an opportunity for change
A cost reduction programme is about making difficult, but necessary, changes.
It also provides an opportunity for positive change. Staff who are feuding or exhibiting other culturally unhelpful behaviours can be removed. The company’s proposition can be simplified. New roles can be created and new talent can be brought in. Poor performers can be asked to go.
The need for change will be obvious to all, and it is a great time to be radical.
Needless to say, all cost cutting involving people needs to be done legally and sensitively. Due process needs to be followed but, if applied sensibly, the rules can be helpful rather than restrictive.
If cost cutting is looming in your future, I can promise you it won’t be fun, but whether you are cutting or being cut, make sure you grasp the opportunity for positive change.