Just about every C-level leader talks about how they want to grow their business. But their actions often say something quite different. Frequently cost reduction takes center stage, while actual growth stagnates.
I'm a huge fan of not wasting money on things that don't add value in a business. And there is plenty of fat to trim if you look strategically. Unfortunately, I see a lot of cost cutting becoming an end in itself. I met with a leader last month who was spending over $3M in consulting fees this year on an effort to reduce costs. Cue the irony. Senior managers reporting to this leader expressed zero confidence that the savings goal will be achieved. That's a lot of money to spend on saving, don't you think?
The truth is, you can't cut your way to growth. You can eliminate a particular job only once. Cutting non-essential travel is a norm to establish one time. You can only save so much on office supplies and important resources before you erode the effectiveness of your people and your enterprise.
As a leader responsible for the future value of the business, your strategy ought to focus on increasing the top line. Looking at cost-cutting versus growth strategies in purely financial terms, consider the following:
Capital costs are around historic lows. So in terms of financing debt, cash is close to free. So the value of accelerating growth-even over just the next year-is greater than improving margins. Here's why. With low capital cost the time value of money is low as well. That means revenue growth has more value to your business in the next year and beyond, than the limited dollars you may save in the next quarter.