Cost cutting is a dead end strategy - Feb 9, 2010

Posted by: John Williams in Articles

Steve Jobs said it all; “A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”  This from a CEO whose company recently hit an all time high in stock price, in a severe recession.

The path Apple Computer took can benefit a number of small and mid sized companies who are facing a downturn and listen to the gurus that preach cost cutting as the salvation of all.  The fact is if you cut costs and downsize, how are you going to meet your competition that is taking market share from those who are pulling back?

Companies cannot cost cut their way to prosperity.  Companies prosper by providing their customers with exceptional products that customers want.  Notice I did not say demand.  It would be an unusual customer that demands a time machine, but if you could deliver one, you could not keep up with the demand.

Make an effort to do these five things:

1. Get the right team on your side.  If a sports team experienced a losing season, would they react by finding the least expensive, least experienced players?  Of course not.  So why as a business person would you want to drive away your “expensive” experienced employees and advisors, while bringing in or keeping a bunch of rookies that are going to cost you much more in the long run?
2. Promote your best products.  What are you good at delivering?  What service do you provide or product you make that is the example of what you do best?  How can you top those products?  Promote the ones you are best at delivering and the ones customers appreciate the most.  Build on them.  Apple’s I phone and tablet computer are not really all that different but one serves customers’ needs better than the other.
3. Attack in the areas where you are strong while others retreat.  The best time to exploit weakness in competitors is when they hesitate or retreat.  The best time to gain market share is when competitors show a lack of nerve in protecting it.
4. Stop waiting for the past to reappear.  I hear often “that business used to be a great money maker for us.”  By waiting for something to occur, we miss major opportunities that other more forward looking competitors understand and capitalize on.
5. Understand who pays your bills.  “Well, the customer just needs to understand that…” is not a phrase that successful people utter.

Cost cutting is a plan if you have let costs get away from you or your business model has drastically changed.  It is not a plan to grow your company or prosper without major other changes to your company.

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