Part - I

Cost cutting is a buzzword in today's corporate world. While direct cost cutting is OK, intelligent cost cutting actually can give strategic advantage to the company over its competitors.

One of the HR Managers remarked in a budget meeting, "Organization will be intellectually harmed by reducing manpower in finance. What organization should do is let finance manager play the role of a finance manager actually. Today his package is 10 LPA but actually the work he is doing can be done by a plain B.Com. graduate, which is worth 3 LPA. Per year company is spending 7 lacs more. By utilizing his potential company can save cost of 7 lacs. There are many more in company like these." The top management was shaken on this idea. After ten minutes of pause, CEO said, "OK, how much are we spending on GM level empowerment workshop?"

This is not a new scenario in companies. Cost cutting is favourite of the promoters. It is also a great tool to push many hard decisions down throats of people under guise of increasing competitiveness. The senior managers good at it also become favourite of promoters (specially Indian promoters) for some period of time. Of course! It gives supremacy, lots of work, and intervening powers to our brotherly Finance Department.

While in most companies finance or CEO spearheads the cost cutting initiative, it should be the responsibility of individual department head, for the simple reason that he knows best about his function and realities under which he is operating. It would be a good idea if CEO allays all fears related to cost reduction and does some counselling of key people, that idea of this exercise is to increase effectiveness of organizational systems. This is one opportunity provided to tackle all inefficiencies. He does more harm to company when his interference to reduce budget of essential costs upsets functional heads. Their morale goes down and they let slips happen. The company actually increases costs this way than reducing it, because saving on essentials gives birth to many secondary problems, which actually consume more money in getting resolved.

For example, management in one company reduced cost of doing climate survey every year (to the tune of 10 lacs per annum). In the very same year, they observed that by year thereafter many talented people who earlier perceived their company as world-class were not feeling the same. Slowly, they started leaving the set-up. The company didn't realize the heat. Cost cutting prevailed. The second line then was made the functional head. Since their perspective was inwards, people down the line started feeling suffocated. Good people there also slowly jumped the ship. The company stared getting the feeling, but still cost cutting went on because business had to survive. (Of course business will struggle to survive as people who could give it growth were just not there in system anymore.) Now the company realized its mistake but it was too late. All over it was filled with mediocre people, politics and rot. The question is what benefit has cost cutting brought to the company? Nothing. It has killed the company. A classic example of cost cutting wrongly done.

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* Contributed by: -
Dhyan P. S. Chauhan is an alumnus of Delhi School Of Economics and working with TechBooks as Manager-HRD.