Cutting costs in the current crisis: Is it the right time and how far do we go?

Mahadeva Matt Mani Partner, Netherlands 19/03/20

As businesses large and small are confronted with the immediate fallout of COVID-19, I’m seeing business leaders grapple with a potentially grim reality. 

The question goes something like this: “After I take care of my people, salvage business continuity and conserve cash, what’s next? How long will this last, and how can I be sure that I’m not cutting back in a way that will leave my business weaker?” 

As a recent PwC survey of Fortune 1000 CFOs suggests, cost containment is the top financial action companies are considering now. And it should be. Experience from prior black swans and market crashes shows that hardly anyone regrets acting decisively on costs. BUT as research also shows, across-the-board cost cutting does not help companies emerge stronger after a crisis. In fact, it may even make it harder to recover at all. No company cut its way to greatness.  

 So what do we do? Here are three lessons I’ve learned: 

  1. Be clear on your company’s must-haves, recognizing there may be accelerators. Your must-haves are the things your company needs to invest in to stay on a path to growth in any economic environment. If you’ve done your work right, it’s likely that your strategy has not gone bad overnight. It may have just accelerated. If before the crisis you thought you had time to make the changes you needed, you probably don’t have that luxury anymore. Conversely, there may be opportunities for you to accelerate in growth areas. An industrial cooling company I know received overnight order cancellations for new equipment, but also a flood of inquiries for their next-generation IOT enabled remote managed servicesthe centerpiece of their growth strategy. In other words, stay committed to investing in the strategic pillars (must-haves) you’ve defined for the long-term. Don’t cut back here.
  2. Emphasize the urgency for transformation. There’s nothing like a crisis to catalyze the changes your business needs. If you were seesawing on transformative initiatives before, now is the time to commit. If you have transformative initiatives in progress, keep them going, and double down where you can. Adjust if you need to, but do NOT stop. Resist the temptation to stop to buy breathing time. There won’t be any breathing time left if you don't make progress on the initiatives you need to put you in a more competitive position. The market will forgive you this year for investments you make in restructuring or change efforts, but next year there is likely to be much less forbearance. Yes you need to be empathetic, but also urgent. Clear, empathetic and urgent. Act now while you can.
  3. Engage the organization as early as you can on your choices. Do not waver. By now, you are likely taking care of the immediate needs of your people and assuring business continuity. If you have that underway, it’s also time to engage your people in what’s next and how they contribute to the recovery. Do not wait on this, or go it alone. Share the reality you see, the choices you are making, and why you are making them. Communicate transparently. Ask for your people's participation to address the challenges and opportunities ahead. You’ll be surprised how much more people get engaged when you’re straight with them vs. sugar-coating, or holding them incapable of digesting straight-talk. Over the next several weeks as they settle in with changes to their personal lives, that honesty will be critical to help your people focus on the recovery process for the business and for themselves.

I’m choosing to remain optimistic about the future. While it is essential to attend to near-term actions to manage today’s disruptions, it is never too early to be thinking about the day after. It will come and you will want to be firing on all cylinders when it does.

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Mahadeva Matt Mani

Mahadeva Matt Mani

Partner, Netherlands

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