Cutting all parts of a company equally may seem fair, but it doesn’t make sense. Targeted cuts and efforts to build capabilities do.
This short essay is a Conversation Starter, one in a series of invited opinions on topical issues. Read what the authors have to say, then let us know what you think.
According to a recent McKinsey Quarterly survey, 79 percent of all companies have cut costs in response to the global economic crisis—but only 53 percent of executives think that doing so has helped their companies weather it. Yet organizations continue to cut. Cost reductions often go wrong, we believe, and our experience suggests that they can be done in a better way.
In the heat of a financial crisis, companies must focus on their financial viability, but they tend to cut about equally everywhere—without considering their strategic needs—because that seems more straightforward, and in some senses more fair, to all executives concerned. A second problem, with longer-term consequences, is that quick head count reductions often come at a price: missing the opportunities that crises can create to improve business systems or to strengthen parts of an organization selectively.
Here’s an example of how things can go wrong. An international energy company that needed to save money fast started by simply defining the amount of savings it needed and then required each department to cut costs by a similar amount, primarily through head count reductions, which varied from 17 to 22 percent. The reality, however, was that the company needed to invest more in certain technological areas that were changing quickly, as well as in operations, where performance was far below industry benchmarks. What’s more, the HR and IT departments substantially duplicated certain activities because different layers in the organization were doing similar things. Much deeper cuts could therefore be made in these functions, with little strategic risk. But the company cut costs across the board, and just six months later, technology and operations were lobbying hard to bring in new staff to take on an “uncontrollable workload,” while substantial duplication remained in HR and IT.
1 komentar:
This article talks about how it is important to not generalize on cutting cost. I agree with this. I think we should sort out first which ones has the least effect and which ones has the most effects had cost is cut on said department. Then decide which department’s cost should be cut the most and which ones shouldn’t.
Cutting costs can be caused by recession or the company experiencing loss or near bankruptcy. Generally when profit is made cannot cover the cost of production, cutting down needs to be done. However, what should be cut and what should not be cut must be accounted very carefully. This could affect the company during the long run in the future.
One way of cutting cost is to fire some workers. A big negative impact on cutting cost this ways is that missing workers could cause in slowing down on production. Meanwhile, a lot of product is needed because a lot of sales need to be done to gain a lot of money.
Another way is to make some reductions on the materials of the product made. This could only be done up to a certain level. Because if a lot of materials are cut, the quality of product may decrease. This is not desirable to the customers. While profit may be increased for a short while, customers might soon realize that they have been cheated and stop buying products. It will end in the brand’s bad reputation and a loss in profit. This does not help with bankruptcy at all.
In the last paragraph of the article, it gave a case study of an energy company that is trying to cut costs. I cannot agree with their way because I deem it as selfish and rash decisions. They are not thinking very far ahead. Had instead they invest in a more high technology, and then their company could produce more energy and profit without losing workers.
BY : Muchamad Agus Salim (1150607071111064)
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