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How Not to Cut Costs

September 24, 2013

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This public listed subsidiary of the global giant was ordered to cut costs by 15% by the end of the quarter. Not only was that order given, it had this condition attached – it must be across all aspects of the company.

The company had already pared expenses and were operating on what they believed to be essential expenditure. Their paring was strategic, designed to save money and at the same time keep them in the right position to recover, remain competitive, and not suffer the serious lag effects of non-strategic cost cutting that befalls most companies that do so.

You can imagine how the board of the listed subsidiary felt, and the response from the senior management. No amount of argument could dissuade the parent company, who was feeling the pinch because of their global exposure.

The costs were cut; half the board resigned and the CEO was headhunted. The talent drain was high with a 26% turnover in staff over the next six months. The mood in the business is negative. Do you think they are poised for a brilliant recovery?

Have you had a similar experience? Why do apparently smart people make decisions like that?

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