In response to the current downturn many business are, sensibly, examining how to cut costs – Do we need this? Can we do without that? What can we delay doing? etc.
Having managed businesses through five recessions during my working life, I think I can reasonably claim to have been there, done that and got the tee shirt – although I also acknowledge that each new recession requires a new tee shirt!
As a result, I have the benefit of hindsight to know that many of my past cost cutting decisions were not the right thing for the business, either at the time or in the longer term.
Even in a recession the well worn saying “you’ve got to speculate to accumulate” holds true. It’s important to note that I don’t mean speculate in the sense of making high risk investments, but simply in terms of investing in potential future benefit, without absolute certainty about the outcome.
It’s on this matter of certainty that I think the whole thing really turns. Recessions are, by their nature, periods of uncertainty. No one is quite sure what will happen next, and this current one seems to be particularly prone to uncertainty. We’re hearing widely differing views emanating from a range of “experts”, and often several inconsistent opinions being expressed by the same person or group in just a matter of days.
It’s entirely natural that the people responsible for the success of businesses want to try and create some level of certainty and stability. They see one way of doing this as cutting costs – “saving” money – which appears to be safer than spending when you not quite sure what’s coming next. This is a completely valid viewpoint that in many, many cases is absolutely the right thing to do.
The problem arises when reducing expenditure becomes a dogma that no longer allows for imaginative investment, even in projects with a high likelihood of contributing significantly to the business’s short-term performance. The “we are undertaking no new expenditure for the next 6 months” approach, which appears quite widespread at the moment, simply fails to recognise that some projects can have immediate benefit and will contribute directly to increasing the stability of the business, rather than undermining it.
One area where carefully considered investment can produce huge benefit, and knee jerk cost cutting results in decimation, is people development. I know it's a cliché, but whether or not they authentically acknowledge it, every business’s most important asset is their people.
The people are the one “asset” that has the ability to consciously decide for itself what its level of production will be, and the vast majority of people actually want to do what they do to the best of their ability. Well-crafted methods that support them in this are rarely wasted, particularly during a downturn.
On top of that, the simple fact that many of your competitors are currently holding back on their spending gives you an even greater advantage.
You gain a double benefit – the growth that you will always get from well thought out people development initiatives, plus the extra gap that is created by the competition’s lack of investment.