Businesses making damaging, indiscriminate cost-cuts
/financial-director/analysis/1742892/businesses-damaging-indiscriminate-cost-cuts
27 Apr 2009, Rachael Singh, Financial Director
According to Hay Group, which surveyed senior finance managers in 140 of the largest 1,000 listed and privately held companies in the UK and Ireland, 90% plan to make operational cuts in 2009-10 and many admit they will make cuts purely to demonstrate strength of leadership.
Hay also suggests one-fifth will undertake fundamental company restructuring to survive the recession, and almost half will reduce headcount by 10%. Additionally, some companies will cut between 11% and 30% from pay and benefits as a decline in profits of 4.2% is expected and factored in over the coming financial year.
A worrying statistic reveals that 28% of companies plan to slash costs across the board rather than strategically addressing under-performing units. Hay predicts many companies will cut the “wrong” costs which could create long-term damage.
“There is a right way and wrong way for companies to take out costs,” says Hay’s associate director Russell Hobby “Successful companies will focus on underperforming areas and look to increase productivity throughout.”
Disturbingly, 52% of financial controllers in publicly-listed companies (and 41% in privately-owned businesses) reported that they were making cuts to reassure their shareholders, even though their business was in a stable condition.
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Reducing costs with no risk of damage to your business
At APS, we work with many large companies and have identified large cost reductions in the area of marketing and operational print. I can almost hear the reader glaze over as I write this but the amounts of cash savings may be much higher than one may think. Large companies often spend between £5, and £10m in this area and this can be even more when looking at spend with design agencies and other high margin suppliers.
Savings of 25% are not unusual when we look at these areas on behalf of our clients and you don't need a calculator to work out that this can offer a decent quick win saving well in the region of £1m - £2m per year.
Given the disruption that saving £2m in headcount can cause, this is a cash prize that, if addressed properly can be realised with no risk to the business and quickly.
Comparing this with the disruption caused by removing 20 or more senior managers from the business the case for at least investigating this is pretty compelling.
If we have the opportunity to carry out a due diligence exercise in this area, we are often able to guarantee these saving underwriting any savings shortfall at the end of the first year and so, in essence, there is nothing to lose.
Simon Taylor - APS Group
simon.taylor@apsgroup.co.uk
Mobile - 07778 593359
www.apsgroup.co.uk
Posted by: Simon Taylor , 11 May 2009 | 00:00