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Businesses making damaging, indiscriminate cost-cuts

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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