Most organizations have a poor definition of productivity. To most of these organizations, productivity comes down to cost-cutting. And this is disastrous. Because, although cost-cutting will appear to deliver results in the short term, it locks the organization in a long-term term of stunted growth.
The argument is often that, if an organization can find the right productivity savings, these can be transferred to high growth/potential areas. Organizations do argue that the money they have saved in places of leakages can then be transferred to places where there’s potential. This sounds great in theory, but it never works out in practice.
When productivity becomes the only measure, it creates growth-limiting incentives. We have seen organizations limit set printing paper quotas, freeze team-building budgets, budget celebrations, off-site meetings. Yet at the same time, these organizations will continue to bleed away with the movements related to the Executive activities. Thus, productivity also often means, that for the lower-ends of the organization, the little they have gets taken away, while for the higher-ups, they can now claim more of these advantages.
In the procurement departments, productivity comes down to negotiation for the sake of negotiation. Finding a discount for the sake of being able to declare a saving. The suppliers/vendors soon learn the way, and just over-price their initial quotations so that there’s a provision to offer a discount to the procurement teams. You end up with a head-in-sand approach, where you have productivity gains in an Excel spreadsheet, but these do not really translate in bottom-line savings.
Thus, this translation of productivity as cost-cutting has done more harm than good in organizations. Nothing that relates to progress ever comes out of these initiatives. You can’t point to a single organization that grew its market share or increased revenue through cost-cutting. In fact, most organizations do lose market share in these periods. Do you want to save your last penny while stunting functions and departments? Or do you actually want to invest for growth?
As Ortega Group, we can affirm that cost-cutting is not, has not and will never be a growth-strategy. Any Executive whose strategy is hinged on cost-cutting is surely headed for failure, most certainly in the long run. Organizations that get lost in cost-cutting take their eyes off the prize, they start to chase the wrong thing. They start to hound the best of their performers, questioning every initiative, it becomes a witch-hunt. And within two years, they soon realize that their cost-cutting focus led them to lose market share. By then it’s too late to reclaim the position, panic sets in, and unfortunately the executives that brought the organization to this status-quo are always on their way out. But the damage they have done lives on long after their exit.
If you work in an organization where cost-cutting is the major strategy, forget about growth. Forget about growing your revenues and market share. Money creates money. That formula is not about to change!