Magazine article Management Today

A Quick Fix Is No Cure

Magazine article Management Today

A Quick Fix Is No Cure

Article excerpt

Imagine this. You're chief executive of a company suffering an unacceptable cash outflow of f,5 million a year. You conventionally instruct your finance director to crack the whip. Off he goes, with his right-hand hatchet man, to bargain hard with the spending functions and the divisions. He returns triumphant. The cash deficit can't be eliminated this year, or even next, but he forecasts sharp annual reductions to eventual disappearance - and he's sure the bank will be overjoyed. As you read his report, though, you start worrying. The overall thrust will reduce revenue growth. Is there a risk of emerging leaner and fitter financially - but feebler in competitive terms?

As you plough through the recommendations, that question continues to nag, and is joined by other worries. In fact, they number over three dozen, on a rough count. Most of the proposals will 24 save only small amounts of money; some will increase costs, largely because of sops thrown to growling barons; contingencies have been cut because financial control is now so wonderful; other changes, nothing to do with the deficit, have been inserted by the corpocrats, taking their chance to complicate an already Byzantine corporate manual.

An old phrase - about |saving candle-ends'- comes to mind. And haven't you read something more recently about the absolute folly of cutting costs within an unchanged system? The more you're-read the report, the more you suspect that its very complexity reflects a deeply unsatisfactory system which the finance director is making worse still. What do you do?

Probably, nine chief executives out of 10 will gladly back the finance director: the board might even recommend a raise, and fatter stock options, for his Trojan endeavours. HM Government has just acted in the same spirit. A ramshackle system for fiscal and economic management, which can't produce orderly government finances, or provide satisfactory levels of public service, or feed the economy's need for expansion, has been exploited to cobble together an uncoordinated, unproductive, uncertain outcome. And almost everybody cheers.

Look, not just at Kenneth Clarke's budget, but at all its predecessors, and the same pattern is repeated time and again. Given the plainly unsatisfactory results, the process must be akin to medieval blood-letting: the cure makes the patient worse. What you find after administering cost-cutting treatments in repeated doses is that the process |has hurt product quality, alienated customers, demoralised staff, and actually cut performance growth'. That's been noted |in companies around the world' by Ben Tregoe and T. Quinn Spitzer, respectively the chairman and chief executive of Kepner-Tregoe. A survey by the consultancy revealed that companies have become cost-cutting junkies: 87% of those who responded had undertaken a cost-cutting initiative during the past five years. The fix is also very likely to be repeated: 38% of those questioned expected to be cutting again within no more than a year.

Obviously, if you don't improve the processes, the work must still be done. |Cost-cutting usually fails to change the behaviours that led to cost expansion... people go back to the old ways of doing things. Managers return to the patterns of hiring, promoting, and empire-building. Expenses are allowed to expand. And costs inevitably come right back.'

Michael Hammer and James Champy, the leading prophets of today's |in' nostrum, make the same point in explaining why Re-engineering the Corporation (the title of their book) seems to fail 50-70% of the time. …

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