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Recessionary Times Are Here: Cut Costs or Engage Employees?

This past March we shared some thoughts and planning ideas for business owners and CEOs looking to navigate their way through the current economic storm. Central to our thinking was, and continues to be, the notion that embarking on a cost-cutting spree is not necessarily the most effective method for safeguarding your business during an economic downturn. Rather, developing and sharing your long-term plans for your organization with employees can help meet these long-term goals more efficiently.

A recent article in Financial Week emphasizes this point. In “Feeling the pinch? Think locally, streamline globally,” Matthew Scott quoted a recent Hackett Group study that addressed implementing “ … carefully targeted general and administrative cuts to offset anticipated profit declines … .”

While the words ring true, it is then appropriate to ask an important follow-up question: How can a business owner or CEO determine which cuts to make while considering both the short- and long-term health of his or her business? We believe, as with most elements of planning, that shifting focus from one-time exercises to the ongoing viability and prosperity of a business is the preferred approach. While these processes have many names, a coupled systematic process and mindset known as “Total Value Management” (TVM) is a process that has been successful for many companies. In a 2001 article titled “Total Value Management,” Michael Wood spells out the steps to successful implementation of TVM.

TVM aims to promote a culture of continuous improvement that maximizes resources to deliver efficiency opportunities, effective processes and procedures and increased business growth. TVM starts with the notion that an organization must consider the long-term implications of its actions; find ways to achieve sustainable growth; and control costs and expenses without being consumed by a short-term financial quarter-to-quarter mentality. Each strategy must be directed at improving the value delivered to a stakeholder group, without diminishing the value to other groups. With these strategies in hand, initiatives are then developed. In order to be effective, these initiatives must be measurable and action-oriented.

Soliciting ideas and suggestions from employees, and celebrating successes along the way, are critical to the success of a TVM system. Rather than just generating ideas for cutting costs or enhancing value from leadership, reaching out to the entire organization can be both rewarding and transformational. Thinking before acting and then communicating the reasons behind actions taken can go a long way toward effectively aligning an organization’s strategy with its employee base.

If effectively implemented, a TVM system can change hallway conversations from: “They are doing it to us,” to “We are helping make our company stronger for the long term.”

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.