The following are approximately the first 1000 words from Chapter 27 of Jonar Nader’s book,
How to Lose Friends and Infuriate People.

The final cut:

The bottom line about the cost-cutting frenzy

As you know, there are connoisseurs who can sip wine and tell you its vintage, and there are musicians who can hear a tune and tell you its key. Similarly, there are company directors who can read a set of financial statements and identify the weaknesses. However, can you identify potential problems before they impact the bottom line? Come on this investigative journey and observe how easy it is to pick up clues, without so much as looking at the balance sheet.

A good place to start would be the annual staff meeting. Watch for CEOs who spin a few motivating lines about ‘the need to change’ and ‘the need to work together as a team’. No doubt, references will be made about ‘the tough market’ and ‘the uncertain times in which we live’. After much hoopla and clichés, the CEO will announce that there are five important objectives for the year. At this point, the auditorium will be filled with the sound of rustling paper as each staff member turns to a blank page, with pen poised, eager to receive the new wisdom.

Looking at the large screen above the stage, the CEO says, ‘Our first objective this year is to increase our revenue. Second, we must reduce costs. Third, we must increase our profit. Fourth, let’s not forget to improve customer satisfaction.

‘Fifth…’ Ah, what was the fifth thing? ‘Oh yes. Fun! Let’s not forget to have fun.’

That one slide speaks volumes. It says that the senior management team does not comprehend the principles of success. They speak about the need to focus on growth, but they do not realise that growth is merely a result of other factors. No amount of focus can help an organisation to grow. Growth comes after excellence and innovation are exercised, and to do this, one must be focused while simultaneously aware of the customer; the market; the industry; the world. Therefore, the CEO would have been better off to enlighten the assembly on what excellence and innovation mean, and how the managers plan to set the foundations for these to flourish.

As for teamwork, no amount of group-therapy can enable a bunch of people to work well together. Teamwork has nothing to do with being kind to each other. It is all about constructing teams that work within systems that work.

In relation to customer satisfaction; when will they learn that it is impossible to offer customer satisfaction? Customers do not want to be satisfied. They just want what they were promised when their money was taken from them. No two customers are alike. No two situations are the same. The best that you can do is to listen to what customers are trying to tell you. But organisations only know how to ask questions: ‘Account number, name, date of birth, postal address, mother’s maiden name, password — now, what was it you called about? Oh, you’ve come through to the wrong section, and I can’t transfer you…’

If customers dare to speak up, they will soon be told why it is impossible to give them what they were promised. They will be silenced with the P word or the C word, or the other P word. It’s Privacy, or Confidentiality, or Policy, or all of the above; and if you do not like it, there are always S words, because ‘we are truly Sorry, but that is our System…’

When organisations exhaust every possible promotional offer, they scramble to find other ways to improve the bottom line. And this is where cost-cutting comes in. It is a new frenzy and a top priority that says that the business is in trouble — signalling several warning signs.

First, why is cost-cutting all of a sudden important? What has changed to make it so urgent? Is it because the margins are lower than ever before? If so, why have margins been allowed to diminish, and why are customers assessing products or services based on price alone?

Second, if cost-cutting is the only way to improve the bottom line, where would that type of strategy lead? What will they do when costs can no longer be trimmed and they hit rock bottom?

If cost effectiveness has not always been part of an organisation’s daily routine, then its immediate and urgent introduction is bound to fail. It would be like a gambler who cuts down on living expenses, hoping to put more money towards the very black-hole that necessitated a review in the first place.

Cost cutting is for wimps. Besides, any fool can do it, up to a point. And then what? If cost cutting means closing down a branch, I would want to know who approved its opening in the first place. Unless an organisation identifies how it rewards its decision-making, the same insidious processes will be applied to a chopping frenzy that could well sever important arteries that will lead to haemorrhaging.

Apart from the slash-and-burn approach to cost-cutting, there are ways to educate staff members to look for clever efficiencies. For example, the team that made Kit Kat chocolates in the 1980s was aware that aluminium foil was more expensive than chocolate, so they found a way to save half a centimetre of foil. The sheet of foil was placed flat, but the bar of chocolate was not positioned square in the centre. Rather, it was placed at an angle. That simple folding technique was an ingenious cost-saving exercise. This valuable type of cost-cutting is invisible to customers. If an organisation is not engaged in invisible cost-cutting, it is bound to leave its customers distrustful and dissatisfied.

Cast your mind back to the last few management meetings — how often were the terms ‘cost-cutting’ and ‘cost-saving’ uttered? When was the last time someone walked in and said,

‘I have found a way that enables us to charge customers more, and they will even be happy to pay more’? A superior business is one that can charge higher prices for its products or services.

By the way, are your customers really your customers?