The dangers of cutting costs and how to avoid them…
Brexit could have a serious long-term impact on the UK’s third sector, but many charities are starting to feel it’s effects already. As one charity leader recently told me, “All the best people across government departments have been dragged away onto Brexit work, but more than that, I’ve been working with public sector bodies for over twenty years, and I’ve never seen chaos like this.”
Despite the best efforts of some extremely supportive MPs, it’s likely that public sector talent and finance will increasingly be directed away from our work, leaving many charities needing to cut costs deeply and quickly in order to survive. If that’s a potential scenario for your organisation, you need to start preparing now, because there are good ways and bad ways to go about cost-cutting.
For any major change, staff engagement is important, but for cost saving it’s absolutely essential. Driving through large-scale cuts without it, is not only self-defeating, but can do significant damage to your organisation and brand. I couldn’t ask for a better illustration than the one I got on a mid-morning train. We had not long left Nottingham station, when I heard an announcement: “Ladies and gentlemen, I apologise for the lack of restaurant facilities on the train today, this is due to East Midlands Trains new staffing policy”.
Throughout the journey, the announcement was repeated in a variety of ways, but the finger of blame always pointed in the same direction. By the time we reached London, nobody on the train was in any doubt about who the baddies were. So, when you’re planning on cutting costs, make sure the people who represent you to your clients, customers and stakeholders are all fully on board. Here are five fundamental requirements for a successful cost reduction programme:
Light the burning platform… publicly:
In order to save IBM from collapse in the 1990s, Lou Gerstner had to take out $8.9bn of costs. In his words, “The sine qua non of any successful corporate transformation is public acknowledgement of the existence of a crisis. If employees do not believe a crisis exists, they will not make the sacrifices that are necessary to change.”
Show the way… compellingly:
The leadership must explain simply, and with a single voice, the scale and severity of the challenge, the implications of not addressing it, the benefits of overcoming it, and what needs to be done. This is a logical series of deliverables, and an outcome that employees can understand and buy into.
Take the pain… quickly:
Where there are difficult decisions to be made, they need to be taken quickly and clearly. Fast is better than perfect. When it comes to structures the key is clear accountabilities from day one. The alternative is turf wars and politics. When it comes to exiting services, get a trusted external perspective and listen to the facts. Every strategic transformation will have some flawed decisions, and almost always they are due to emotional attachment.
Stick to your values… unflinchingly:
Essential for strategy, fundamental for values. The values and behaviours that are articulated prior to, and demonstrated throughout, a transformation, have a defining impact on the organisational culture that remains afterwards.
Communicate… incessantly:
This commitment starts at the very top and has to be sustained. It may be continual repetition of the key messages, tangible changes that cement belief, spotlighting specific achievements and behaviours, or the creation of myths and legends. Whatever the style, the content must constantly reach out and touch every employee. The minute the communication lets up, the focus will drop, progress will falter and the savings will dry up.
Nobody enjoys cutting costs, closing services, cutting staff, and potentially reducing impact, but if that’s what needs to happen, it can’t be done reluctantly and half-heartedly. The difference between success and failure will be entirely defined by your leadership, commitment and resolve.