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On Cutting Costs

Every once in a while as a family we have to cut costs. Cancel that vacation that we had been planning for a while, postpone the purchase of new furniture and all because of changes in the estimated income or returns. But when we do that, we are careful to not disrupt the core foundation of our family. Food and nutrition, children's education and bare essential quality of life is maintained. We only cut fat.

Also in a matured family we allow an opportunity to our family members (at least the adult ones) to have a say about how we are going to go about saving money. We have a long term view of how and when we are going to come out of this financial predicament and at the end of the long tunnel the family will survive and thrive as a whole.

Corporates on the other hand, especially in this new day and age, have a much smaller view. The new life of CIO and CEOs is around 5 years within an organization. So their perspective is that long. Bring in a major transformation so that they can show it in their resume and move on to another organization. And then we have cost cutting commandoes who are brought into the organization to suddenly cut costs. They are offered millions to cut costs by billions. They don't care about long term profitability, customer value, employee morale or stakeholder interests. They come in, butcher and leave with their millions leaving behind them a trail of blood and gore.

It is imperative for leaders of an organization to treat the organization as a family. Give options to the impacted to check if they would rather take a severance today and leave or stay with a smaller pay package. Perhaps, the conflict of interest could be eliminated if leaders were to benefit more by staying in an organization for long term rather than leaving. The long term stakeholders / board of directors could take an active part in building the compensation model that could enable this. Instead of offering millions to cut costs in the short term, they could look at bringing in true leaders and offering them stake in the organization that would vest years down, encouraging them to stay and build a family rather than fire, outsource and leave an environment of disappointment, layoff survivor's guilt and stress.

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