Carefully analyze every cut to avoid hurting your company’s potential

The recession has taught businesses across the country a harsh and valuable lesson: Nobody is immune to cutbacks. Every CEO, operator and manager will, at some point, face difficult decisions regarding the allocation of resources.

But how those cuts are made can have a significant impact on the culture, the morale of employees and future growth prospects.

“Companies often decide to make an across-the-board cut,” says Holly G. Green, CEO of The Human Factor Inc., a San Diego-based business consulting firm. “But that assumes that everything is equal in a business, that every department and process has equal weight, and it simply does not. You have to really step back and think about what factors most contribute to your success and make sure that what you are cutting doesn’t affect those areas.”

Protect your people

Employees are an important part of the success of any business — in particular, to the ability to provide great customer service. Yet that is often one of the first places a leadership team looks for financial relief.

“When you look at your budget, employees don’t usually show up as an asset, only an expense,” Green says. “But they are at the core of what you are doing. If you simply cut your numbers and take away their rewards and resources, you are going to damage their morale. You are sending a message that they are not important.”

That morale hit will trickle down to customer service and ultimately damage the company brand. Customer service is, in a tangible way, a powerful marketing tool. Indiscriminately making cuts when it comes to trimming costs is a surefire way to damage branding and marketing efforts.

“Customer relations is how your brand is manifested,” Green says. “It brings your brand to life.”

Effective cost cutting

While no company wants to adversely affect its culture and brand, if the business is in financial distress, expenses must be trimmed from somewhere. To make those cuts with laser precision instead of a broad stroke, Green suggests examining each area of the company, making cuts on a case-by-case basis and — as much as possible — involving employees in the financial restructuring.

“If there is a way for you to delay a process or project, that is one way to trim costs,” she says. “You can delay investments. You can examine ways to trim fat and improve efficiency. One of the most effective things I have done is ask employees to come up with scenarios to cut costs without cutting people. It is really amazing the workable scenarios that people come up with when given that challenge.”

Above all, think strategically. Cutbacks should have a strategy behind them — one that goes deeper than mere survival.

“Sit down and really assign strategic value to the people and resources you have,” Green says. “Examine the long-term ramifications of each cut you plan to make and act accordingly. Do not just go for people first.”