Cut Costs, Grow Stronger : A Strategic Approach to What to Cut and What to Keep

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Changing the Conversation About Costs

IF YOU ARE LIKE MOST executives, you have been spending a lot of time lately thinking about costs. Many businesses are struggling to survive, as the worst global economic crisis in more than seventy years unfolds. Others, even if they’re doing relatively well right now, are reducing expenses to make sure they are well prepared for future uncertainty. The pressure to cut costs—whether driven by your cash flow, your shareholders, your uncertainty, or your investment needs—is extraordinary.

But there is a positive side to this situation. Dramatic cost cutting gives you a chance to refine or even reformulate your overall strategy. After all, you’re never just cutting costs. You’re making a decision that something is no longer strategically relevant, and that other things are essential to keep. Yes, you may have to lose some product lines and activities, and perhaps some of your employees and customers. You also, however, have the opportunity to help your company grow stronger in the process.

We reject—and you should emphatically reject—the idea that cutting costs makes your business weaker or more limited. Sustained cost reduction tends to correlate with corporate performance over time; the perceived opposition between these two goals is a false dichotomy. To be sure, if you reduce expenses in a panic, or without an eye to strategy, you could do great harm to your company’s competitiveness. But if you focus on your priorities and on your future potential, cutting costs can be a catalyst for exactly the change you need.

The current moment of financial stress—indeed, any moment of cost pressure—is a signal from the world at large to your business. It is saying that you need to choose your strengths and use them more effectively. The signal may also be telling you that the market has changed, and that old paths to profit are uncertain. It is time to put your stake in the ground, to say what your company is about and what it needs to become, and to make many of the hard choices that your company has needed to make for some