It seems that in this economy, many companies are still trying to show a profit, whatever the cost. They are reducing staff to the point that critical projects are put in jeopardy, making it difficult or impossible to meet the commitments they still have. Other companies are avoiding layoffs by cutting pay by reducing salaries, unpaid days off, etc. These strategies are reasonable survival measures for companies that are facing bankruptcy, but I’m seeing it being used by companies that are healthy to continue making a profit.
I may be naive, but I would not be so focused on profit at a time like this. I would be looking at two economic projections as applied to my industry. The first is at my best guess at how long and deep this recession will be. The second would be a more pessimistic view, much like the Obama administration is applying to the banks in theis “stress test”. With those projections in hand, I would come up with two budgets. The first would be targeted to break-even in the best guess economy. The second would rely on drawing down my cash reserves to a bare minimum, or even zero, in the worst case economy. Based on those two budgets, I would maintain staffing and spending as high as possible.
This approach would have several benefits. First, my company would be positioned well, with my teams intact, when the economy recovers. I won’t have to scramble to re-staff, sacrificing productivity in the recovery. Second, if this were to become the norm, the recovery will be much faster than if everyone keeps focusing on profits.
So why do so many companies take short sighted approaches?
Filed under: Business |