Across the board cuts are lazy

Across the board cuts are lazy

There’s a lot of cost cutting going on these days, much of it necessary, appropriate and beneficial.

But the worst kind of spending reduction– one you should avoid yourself and be suspicious of in others– is the across-the-board cut.

Across-the-board cuts are lazy.  They are also irresponsible.

A few months ago, an executive attending one of my workshops said, proudly, “I’m cutting all of my salespeople’s travel budgets by 50%.”

I asked, “Why all of their budgets, and why by the same amount?”

What if this executive has one salesperson who is incredibly effective in face-to-face meetings with customers? Maybe it makes sense to increase this person’s budget, and tell him to stay away from the office.  Perhaps another sales person is particularly good on the phone.  Cut his travel budget by 75%.

Here’s another example of lazy, broad-brush, across-the-board cost cutting: A company announces, “All departments will reduce headcount by 5% in light of the current economic downturn.”

I hear this and I want to ask a similar question to the one I asked above: Why all departments, and why all the same amount?  Maybe the best way for this company to deal with the economic downturn is to double the size of one department and slash another department by 50%.

Since they are bad business decisions, why do business people make across-the-board cuts?

One reason: Bunker mentality.  Many executives use business stress as an opportunity not to think.  “We’re taking a lot of fire here, getting shot at from all directions, we better just hunker down, cut back, and ride this thing out.”  (“Isn’t it a relief,” says this executive to himself, “with all of the pressures hitting us from the outside world, to have an excuse not to deal with all of this thinking and strategy stuff?”)

Another reason:  Not being “fair” is uncomfortable. Executives often use across the board cuts as a way to avoid the difficult, uncomfortable, fidget-worthy process of saying, “Bill, I’m cutting your travel budget by 75%.  Julie, I’m doubling yours.”  Or, “Fred, you need to let half of your department go. Jim, you better start hiring, quickly.”  It’s so much easier to treat everyone the same, but it’s really bad for your business.

The big reason: Laziness. Thinking is hard. Many people avoid it.  Those who don’t avoid thinking are much better equipped to deal with the current state of events– whether that be a slight economic downturn or a full-blown economic recalibration like we are now experiencing.

Your business is a complicated beast trying to thrive in a complicated, pressure-filled, ever-changing world.  If you want to have the agility to navigate this world, you need to practice discernment, deliberateness and deep thinking in order to recognize the different values that each part of your business contributes.   Now is a time when it is critical to make optimal allocations of resources, because resources are tight.  When you look beyond the across-the-board cut, you look at the unique values of each of your resources, and you can nurture – or cut – those resources in a sensible way.

As I wrote at the beginning of this article, you should be suspicious of across-the-board cuts. They are usually a sign that the people making the decision to cut haven’t thought hard enough.  Most importantly, question yourself if you find yourself making broad-brush, generalized spending cuts.  If you sharpen your thinking, and recognize that your business is made up of many different components that each contributes a unique value to your company, you will put yourself in a much better position to thrive in this time of economic turmoil.

This topic isn’t new to me. Here are more resources to help you avoid the pitfalls of across-the-board cuts:

Focus on opportunities, not cuts

“Making across-the-board cuts is like going to the bank and asking for five inches of money.” (From tompeters.com)

Are you hunkering or recalibrating?

No matter how many costs you cut, they can only help so much. Your business needs its own stimulus package.

Listen to my 2009 Readiness Teleseminar and download the workbook.

Steve Yastrow
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12 comments on “Across the board cuts are lazy
  1. As a corollary to laziness, people also make across-the-board cuts through ignorance. If an executive isn’t engaged with her employees, she won’t know their strengths and weaknesses. When a budget shortfall looms, she won’t have the knowledge required to make good decisions.

    Sometimes that ignorance isn’t the result of laziness but (even worse!) is the result of arrogance. Some executives make decisions without the input of the employees who will be affected by those decisions. An individual employee will have better knowledge of the job role he performs every day than will the executive who manages him. If the executive gathers input, she will be able to make strategic decisions for the benefit of the entire company.

  2. Paul Hanson says:

    It’s not just lazyness (although that is often a factor) it’s sometimes that execs lack the information to make these decisions. Many large orgs have a singular lack of real clarity about their numbers and performance.

    this is often difficult to simply turn on when things get hard – there has to be an ongoing discipline and infrastructure (systems, processes etc) to deliver consistent numbers accuratly so that decisions can be made.

  3. Hi Paul – Our points are very complementary. Not only do you need to get the information from your employees, you need a way to store, remember and use it. What kinds of systems and processes have you found work best?

  4. leonghw says:

    hi Steve,

    you mentioned that the cut should not be across the board but should be customized according to situation.

    it’s a great theory, good logic & common sense.

    my question is: if you’re leading a 1000 employee firm and the board / investors are hounding you for some quick cutbacks.

    how do you find the time to assess each situation and come out with a well-thought customized plan with the best combination stating the – where, who and how -would be cut?

    if you’re in their shoe, what would you do? can you elaborate on your specific action plan?
    (you may pick one of the company that is cutting across the board that you think shouldn’t)

    rgs
    leonghw

  5. Dan Gunter says:

    rgs,

    A person leading a 1,000 employee firm — if he’s truly “leading” it, should not find himself in a situation of scrambling for information; moreover, he shouldn’t have to make the decisions as to where the cutbacks could be made without his leadership team being involved in the decision. A good leader is like a good ship’s captain. He doesn’t stay hid out in his quarters and only come out when there’s trouble. Rather, he’s always surveying the surroundings, looking at the horizon, and constantly in touch with his officers so that he’s aware of what’s happening. It the captain is a good leader, he wouldn’t come busting out of his quarters to find out the ship is in the middle of a hurricane. He would have known they were headed for it and already been preparing and adjusting course.

  6. Dan Gunter says:

    Steve,

    I’m with you, my friend. Pareto is alive and well. Pareto’s law and the bell curve can be applied to this situation. 80% of your waste (or at least your least critical spending) can most likely be attributed to 20% of your operations.

    Sometimes that 20% of your operations lies in areas that feel “untouchable.” Perhaps it involves people you really like and don’t want to see taking hits while other employees seem to go unaffected. In a perfect world, fairness could be applied and everybody take proportionally equal reductions. But businesses and people don’t exist in a perfect world. If you don’t target the reductions wisely, you greatly increase the chances that everybody ends up out of work anyway.

    Find that 20% that’s causing 80% of the wasted effort and money. If you can’t improve it fast, the reality is that some or all of that 20% needs to be cut. Soon. This is not just a good idea during an economic recalibration, it’s a good idea in GOOD times as well. Unfortunately, when times seem good, we rarely think about what storms might lie ahead and, thus, we don’t use our better judgment and plan and prepare for them.

  7. Judith Ellis says:

    Steve – I am so very much with you. Having longtime family friends who are senior executives in two of the three auto companies here in Detroit, it is simply amazing how easily cuts are made without even having a program or platform in place. If you don’t have either, how can cuts even begin to be made? It seems like a no brainer, right? Well, it isn’t. I can only imagine that other companies in this time of recession are doing the same indiscrimantely based on some vague idea of revunue and profit.

  8. Judith Ellis says:

    “Sometimes that ignorance isn’t the result of laziness but (even worse!) is the result of arrogance. Some executives make decisions without the input of the employees who will be affected by those decisions. An individual employee will have better knowledge of the job role he performs every day than will the executive who manages him. If the executive gathers input, she will be able to make strategic decisions for the benefit of the entire company.”

    Amanda – This is an excellent point. Thank you.

  9. Judith Ellis says:

    Ah, Amanda, popping through again I see that you are actually the author of this thoughtful post. My bad. 🙂 Thank you.

  10. I want to say – thank you for this!

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