Winter 2009


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Managing for Survival and Success in Tough Times


Times are tough. News agencies are reporting bad news, layoffs, pleas for bailouts and other misery. Managers are looking to slash costs and shrink budgets. This is done to survive until good times return. What many managers don’t realize is changes done for short-term survival have negative long-term effects on their businesses. This newsletter shows the problems of budget cutting and how to turn this situation to your long-term advantage.


Typical Responses to Tough Economic Times


The typical playbook to react to economic downturns looks like:


  • No discretionary spending – A directive comes out forbidding any spending that doesn’t have a bottom line, immediate payoff.
  • No travel – This is the favourite tactic of large organizations. This assumes that business can be carried out without visiting customers and suppliers and going out and learning how to improve the business.
  • Hiring freezes – This policy is to protect cash flow. Employees will work to cover vacancies to save the cost of a salary.
  • Temporary layoffs – Again, this is to conserve cash flow. The key bet is that employees will wait to be called back when times improve.
  • Slashing R&D budgets – Here the thinking is there is enough research and development to keep the company moving forward. This is usually the move of managers that are unaware of the value of R&D. They also assume that they can restart R&D when times improve.
  • Postponing and canceling initiatives – Cash flow is king in this move. Essentially the company is saying that the initiative is worth less than the money it costs to implement it. This is in direct contrast to what the thinking was to get the initiative going in the first place.
  • Squeezing suppliers for better prices and terms – This involves using the influence you have over your suppliers and their (likely) own desperation to sell to get better price and terms for their business. This is what purchasing managers tend to do in tough times. They can show their impact on their bottom line by the changes in purchasing agreements.


The result of this for the company is to be able to survive downturns by conserving cash. While these tactics can help a company meet payroll and obligations in the short term, they can seriously weaken the company and diminish its ability to prosper in the future.


Long-Term Implications


In tough times, cost cutting has two main goals. The first is to survive and the second is to send a message to employees. The message is times are tough and everybody needs to feel the pain. While these tactics can be effective, the bigger goal of long-term success is often compromised. This is how the long-term goals are compromised.


  • No discretionary spending – This implies that there is a lot of unnecessary spending normally. To employees, it means that the company is getting cheap and is grasping at straws. Is it a sign of leadership to cut the coffee budget in the face of economic strife?
  • No travel – Again, the implication here is travel is an unnecessary luxury and is seen as a perk to employees. This is another attack to the self-image of employees. Just as serious is what customers and suppliers are thinking about in these times. They are looking at who to buy from and sell to. Having a lack of attention from the company will tend to get them to forget about you.-->


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