Reactive cost chopping is a myopic response to an economic crisis: MTI
Benefiting from its strategy consulting experience in over 40 countries and a diverse range of industries/businesses, MTI Consulting has cautioned Sri Lankan companies on their knee-jerk response of indiscriminately cutting costs.
Whilst acknowledging that the Easter attacks have had a severe impact on business performance and that there is a need to respond with ‘first-aid’, MTI CEO Hilmy Cader has opined as follows.
“When confronted with an economic crisis that severely impacts their businesses, these organisations tend to look for instant weight-loss solutions by chopping costs. This is like amputating a person’s leg and claiming you have achieved weightloss. In doing so, these organisations tend to first cut ‘vertical costs’ like staff head count, R&D, go-to-market initiatives, travel, etc.”
Based on extensive research, experience and thought leadership work, MTI recommends businesses to first look at ‘horizontal costs’ based on a business’ specific value chain and post to that look at ‘vertical costs’ immediately.
This requires recasting conventional balance sheets to an organisation’s value chain and then challenging each module of the value chain for optimal return on investment. According to MTI, this process exposes the silent ‘culprits’, who have been draining value, often at the expense of value chain functions that should have attracted higher investments and focus.
“Most companies tend to go for a cut in head count first, when in fact the ‘fat & slack’ in a business is driven by the activities it undertakes. Therefore, it would be prudent to first take the ‘fat & slack’ out of its strategy (by way of rationalising its offerings, value proposition, channels, customers and all go-to-market initiatives) and its processes.
If this is done effectively, it will clearly expose which of the ‘fat & slack’ in its structure/staff it needs to be rationalised. Otherwise, there is a tendency for uneven cuts and as a result, the operational efficiency tends to suffer,” said Cader.
Trim & Fit Approach
MTI’S Trim & Fit Approach is a performance-driven consulting solution to help companies to prevail (not just survive) the tough times and seize upside opportunities. It takes a ‘direct-2-bottomline’ route, thus ensuring sustainable results with the optimum level of resources.
The entire process of change is lean and effective, which is further reinforced in the recommendations and outcomes. Trim & Fit has been developed based on extensive international research of successful and unsuccessful tough time strategies and MTI’S own experience in the last 22 years (over 650 projects in 40 countries across a multitude of industries).