Challenging the Unkind Cuts

At a business forum in Perth on Thursday 27 October 2011, Malaysian Prime Minister Datuk Seri Najib Tun Razak reportedly told the gathering:

"Many economies, including Western powerhouses, are struggling with enormous fiscal deficits that need to be tackled. In such an environment, it can be all too easy to see long-term infrastructure development as something to be cut in order to balance short-term budgets. But such thinking is short-termist, as properly managed development of sustainable infrastructure is the only way to ensure sustainable long-term economic growth."

He went on to describe some of the initiatives Malaysia is taking to avoid having to cut budgets, including establishing different forms of Public Private Partnerships.

While the Prime Minister is speaking in terms of government actions, the same philosophies should be applied in business. When businesses start to struggle, the usual reaction is to look to the budget.

Budget cuts are a tool used in almost every business and although it is claimed that they are decisions of last resort, they are usually one of the first options implemented.

In a previous post, we noted that when money talks, your business can go into the failure spiral. Before cutting budgets and staff, make sure you have looked at all other options and that these decisions are being made as a last resort.

Budget cuts, especially when they relate to labour cuts, have dramatically unkind impacts on the people in your organisation, their morale, the ability to get the work done. They result in long-term hardship to your people (or former people in the case of labour cuts) and their families, as well as having a broader impact on customers and communities. History tells us that budget cuts are often the beginning of the end for companies, leading to eventual closure, takeover or liquidation.

You need to not only say budget cuts are options of last resort, but make absolutely sure they are (external evaluation and viewpoints will help).

Consider whether you can enter the equivalent of a Public Private Partnership, perhaps a project-based partnership providing services in conjunction with a competitor (short-term project arrangements can be made within competition laws) or to another company looking to add value to their customer experiences. Consider whether your cuts will preserve and retain continued investment in your equivalent of infrastructure, the very foundations of your business from which your customer value is created.

There are times, particularly for start-ups, when short-term budget survival is more important than long-term sustainable growth, but sooner rather than later, you need to find a way to move your business through its corporate growing pains and into a position where long-term sustainable success becomes possible.

For the final word, back to the Malaysian Prime Minister:

No matter how harsh the financial climate may appear, an investment in infrastructure is an investment in people, and an investment in people is an investment in growth.