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Wednesday, January 12, 2011

How to prevent short-term cuts from causing long-term pain

Almost two years ago, I posted a story at this blog which had to do with the risks of cutting innovation in response to the recession [see, “What’s new? Not much,” from February, 2009].

Well, according to a story from the Associated Press, General Motors could be one good example of the consequences a company might face when too many cutbacks are left in place for too long. It might save huge amounts of cash in the short term, but the move does not come without long-term risks. See the story as it appeared today at by clicking here.

Implications: There are two critical moments in every recession, which impact every company: Knowing when the recession begins, and knowing when it has ended.

Did you cut expenses (translate: Operational Capabilities) when the recession began, which have not been re-instated with the growing recovery? If that’s because you realized the expenses no longer provided an ROI, then good for you! But if it’s because you haven’t gotten around to re-considering the needs of your company or staff, you might want to think about it soon. In this example, GM cut their R&D budget. But other budgets to review might include personnel, operations, facilities, advertising, and marketing (in no particular order).

Cutting expenses in times of turmoil can be both urgent and important. Getting back into growth stride once the recession subsides is no less important… but it can seem less urgent. And that’s one thing that can make a recovery even more dangerous than a recession.

Mike Anderson

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