5 things companies should do in tough times
Straight to the point, tough times call for tough measures. Or do they? It all depends on how you define tough measures and how appropriate they really are for the circumstances. As companies currently face a unique situation in modern history and are evaluating continued operations, balancing profits with acceptable levels of loss, functioning with massively more remote work and trying to make up for any economic disruptions, the first thought tends to be “How can we cut costs?”
Is that the right approach? Yes and no. Cost reduction is paramount to offsetting loss of revenue, but careful consideration of which cost centers take the hit and what line items to cut isn’t as simple as calculating savings in dollars and cents. Before you redline expenses, take into account the following guidelines so that short-term gains don’t create long-term pains.
Instant reward versus long-term value
It’s tempting to slash a wide swath to bring down operating spend quickly; however, give careful thought to what you are slashing before you make the cut. What you remove from your operations and budget today may give you some immediate relief but cost you more in the long run.
One common mistake, for example, is to immediately take the scythe to marketing spend rather than viewing marketing as a revenue-generating arm of the business. Scaling back on marketing activities may deliver a quick win for budget reduction but slow or halt fueling the pipeline for future sales and growth.
First, take a look at what functions are undeniably necessary to accomplish the primary purpose of a department and only cut what absolutely does not impact today’s and tomorrow’s growth. For instance, you might be able to suffer from a loss in brand awareness initiatives but not lead generation tactics.
You may also want to shift how resources are used versus a complete cut. In the case of the COVID-19 crisis, which halted all physical lead generation events, such as conferences, trade shows and face-to-face meetings, marketers have had to put more emphasis on digital strategies. While that means less money spent on events, it doesn’t translate into cutting all of the funds normally apportioned to spend on events, but instead moving some of that allocation to the digital activities that may require more investment to make up for the loss of events.
In research and development, for instance, companies may want to halt any projects that are not going to bring in increased revenue. Product development has to continue in order to help boost sales, but like-to-haves versus must-haves need to be reviewed carefully. Anything that won’t deliver more real selling value now, or in the future, should be paused. Improved functionality takes precedence over adding bells and whistles that primarily look good.
From a more positive perspective, difficult times can also bring about a rise in innovation. Necessity is the mother of invention, so you may find that in tough times, new and more streamlined ways of doing things or new strategies for products, pricing and the market you serve can keep revenue gains stable or even increase them. This is a time to encourage revolutionary thinking and get your teams involved in coming up with new ideas. You can help fight any feelings of doom and gloom with an eye for envisioning a better tomorrow.
Save now or spend more later
When you make cuts, also think about what it will cost later to replace what you are removing now. This includes human resources. If you furlough employees, what will it cost in severance and offboarding and what will it cost for hiring and training if you have to bring in completely new employees down the road?
Additionally, what costs will there be in lost productivity or in job burnout for other employees who may be called on to take up the slack? If key players on your team become overburdened, they may look for other alternatives. Top talent, especially at higher executive levels, is not easy or inexpensive to replace.
Weigh risk and reward
When shaving costs, look beyond cost itself to appraise risk and reward. Laying off employees may mean more than decreased production and greater future cost to hire and train. What other risks could occur as a result?
Companies, as a case in point, don’t want to let up on their system security to save money and, in so doing, leave their businesses at greater risk of damaging attacks. Whether it is cutting employees who manage security, audit or compliance, or decreasing the tools used to aid prevention, a reduction can hurt an already diminishing bottom line.
The Association of Certified Fraud Examiners notes that, in times of recession, cases of internal corporate fraud tend to increase, as was evident following the 2008 economic slump. As a result, it is imperative to look at what risks can be more prevalent and how cuts might impact those risks even more. The ACFE cautions this is not time to let down your guard when it comes to protecting your companies assets.
“Corporate fraud is an immense problem, even in the best of times,” said Kelly Richmond Pope, a forensic accountant and professor at DePaul University who directed the movie, “All the Queen’s Horses,” which showcases one of the largest cases in U.S. history of corporate fraud involving a single individual. “It increases in economic downturns when employees have greater motivation and can rationalize fraudulent acts. Many of these cases can be thwarted with proper controls in place. That is one thing you don’t want to cut during a recession. In fact, you should beef up your safeguards during this time.”
Leverage technology to take up the slack
One approach that can help is to survey what solutions can be put in place to help do the jobs at a lower cost than the employees who can no longer perform them if layoffs in certain areas are a must. You don’t always have to throw out the baby with the bath. You can up your protection while lowering your operating budget.
Even if you don’t have to cut employees who normally oversee certain functions, especially if they are manual, certain technologies can help, especially when it comes to keeping your company secure in uncertain times.
Keep morale high
When companies and their employees are weathering rough seas together, it’s more critical than ever to help keep spirits high. Encourage teams to see the situation as a challenge to make your business better. Find ways to celebrate every success and achievement.
Working remotely or in times of uncertainty doesn’t have to impede morale, but you might have to get more creative and deliberate about culture and recognition activities. This initiative doesn’t have to be left to the top leaders. Ask the team to help share ideas. They will take more ownership too if they are involved in creating the plan.
Keep employees informed and be transparent. Lack of communication fuels fear, so make sure you are building an internal communication plan to keep your employees fully engaged, invested and valued. Ensure too that your employees working from home believe in and lean into your company’s goals, missions, values and corporate culture.
Similar to individuals who go through difficult periods in their lives, companies find they often experience their greatest test of resilience, perseverance, innovation — and even professional growth — when the going gets tough.