2 November 2008

Expense Reductions

This one is nobody’s pleasant subject. Nobody wants to cut expenses. Primarily because most of the time, it deals with the very tough calls of separating valuable employees from the company. Yet, thru this unpleasantness, I believe I have learnt a lot and become a stronger leader. My first big downturn was the Internet bubble crash and now of course we have the whole world crashing 🙁 [As a side note, the current problem is severe and very unpredictable – still it is not the end of the world or even close to the Depression]

Back to the learnings…

What are the first things that get squeezed? Travel, Entertainment, Training and such. While there should be a very tight watch on these, it is not the best thing to go after. For starters, you can usually not squeeze much unless you had a hopeless system of approvals for travel and training. For another, they rarely deliver big numbers.

Assuming you will never go thru only one round of job cuts, I would suggest using the framework of three steps to deal with it:

1. First focus on productivity. Usually, in a growth mode, you will be surprised how we tend to add costs. If you get smart people together in a room, you will be surprised how many good ideas can come up on how to do the same thing smarter and cheaper.

2. Second, focus on stopping doing something. After a few rounds of trying to squeeze productivity, we need to show courage in the face of adversity by prioritizing. And this means making active choices of stopping some work, project etc etc. Usually, this is tougher than the first step since we live in a world where everything is considered high priority.

3. Third, look at structural changes. Break up fixed cost structures (you may need restructuring charges), flatten your organization, relook at other arbitrages (cheaper countries or outsourcing) – just go for larger structural changes.

None of these are easy – but that is the fun of running business. Sometimes you have to figure out how to respond to external changes that you have no control over.

Any learnings you have had personally?

Cheers,
Rajib



Posted November 2, 2008 by Rajib Roy in category "Learnings

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