Is Cost Cutting Enough in a Crisis?

Last Updated Jun 5, 2008 9:25 AM EDT

One of our clients has undergone a big cost-cutting exercise and fears the company will be so busy doing the day-to-day that it will stop innovating.

With all this talk of recession, it's probably something companies will be experiencing more and more.

We put this out for discussion within our business, ?What If!
Here are a couple of things that came back.

1. This all links back to innovation ambition.

Are they innovating to cut costs to reduce the amount of water leaking from their bucket?

Are they innovating to plug some holes in their bucket? Or are they innovating to find some new, shiny, bigger buckets in more monsoon-like climates?

Innovation can really flourish in companies that want to find new ways to plug holes or find new buckets.

I once had my marketing budget slashed by nearly 20 per cent. At first I thought this would have a major impact on sales and customer satisfaction.

But it forced us to re-evaluate what we did and search for new ways to create impact. We reduced print costs by driving more activity online and pioneered the first 360-degree virtual tours.

From a cultural standpoint, the key was great communication and signaling around what we were going for as a business, combined with sharing a leadership belief that reducing costs can inspire possibility.

Necessity (as they say) is the mother of invention.

2. Interesting how in business it seems intuitive when the chips are down to focus single-mindedly on cutting costs and saving money.

Yet this is not a long-term solution in real life. If you facing debt or having your home repossessed, would thrift stop the debt spiral? Probably not.
So, what would you do? There are two approaches to personal debt, where your outgoings are greater than your income.
  1. Cost saving. This presupposes that your income is fixed, there's no hope of growth and you have to reduce your ambitions in order to accommodate a capped income. This model feels quite defeatist.
  2. Money making. The ones who get out of debt and begin to live a lifestyle more in line with their aspirations focus on getting creative about how to generate more money, which is what innovation is all about.
This is what Apple did in the 1990s. Rather than lay off loads of recruits during the tech downturn, it plunged money and energy into innovating its way out of trouble.

Out came the iPod and iTunes and Apple Stores (when everyone thought apple was mad to go into retail) and now the iPhone.

Remember Toyota in the 1970s oil crisis when sales plummeted by 37 per cent? Under threat of massive job losses Toyota put the case to the employees to find ways to save money.

It got 247,000 ideas in the first 12 months and managed to avoid lay offs. It institutionalised the process thereafter and called it the Toyota Idea Factory.

  • Dave Allan

    Dave Allan is a co-founder of What If, largest independent innovation company. He also co-authored ‘How to Start a Creative Revolution’ and ‘Sticky Wisdom’ (Capstone Books).