Cost-cutting can beat a slowdown
Cost-cutting can beat a slowdown
THE BEST COMMENT WILL WIN A YEAR'S SUBSCRIPTION OF BUSINESS TODAY
Vineet Singh, PGP 2012/2014, IIM-A

"Innovation is the key, not short-sighted slashing of budgets"



A focus on cost cutting alone can lead to cutting corners. To thrive in spite of a slowdown, corporations need to walk a thin line between reducing costs and investing in future growth. When Alan Mulally became CEO of Ford Motor Co, the company had gone through several downsizing initiatives but was still losing market share. Mulally sought to renew Ford's culture by encouraging transparent decision-making and increased accountability.

Ford rapidly gained market share and its profits continued to soar even though its competitors, General Motors and Chrysler, declared bankruptcy. Companies must avoid short sighted cost cutting measures and instead innovate. During the Great Depression of the 1930s, P&G chose to pursue new marketing modes instead of cutting advertising budgets.

Realising consumers would continue buying soap, it sponsored daily radio shows called "soap operas". P&G's marketing innovation resulted in strong growth over the next several years. Thus, corporations must invest strategically during tough times while managing costs, if they want long term success.

Karthik Vedagiri, PGP Class of 2014, ISB, Hyderabad

"Cost-cutting is the most potent antidote to the economic slowdown"


There are shining examples which reinforce my assertion. Air India reported a cash surplus of Rs 460 crore in the April to June quarter this year. When most people had written off the carrier, it was the grossly underestimated power of 'cost-cutting' that came to its rescue.

During the same period, Maruti Suzuki too reported a 49 per cent growth in profits over last year's figure. Maruti embarked on a process of re-invention, maximising operational efficiencies through innovative production techniques and better inventory control. Interestingly, the company achieved such unprecedented growth, even with its net sales falling 5.1 per cent, as compared with last year's same period sales.

These exemplify the role cost-reduction plays in stimulating economic growth, especially during periods of slowdown. Sadly, cost-cutting has been viewed rather myopically, as a mere slew of employee layoffs, debt restructuring and austerity campaigns. To my mind, it is an opportunity to reassess business processes and come up with innovative solutions, while providing robust, sustainable growth.