The True Costs of Cost-Cutting

When organizations cut costs, decision makers often assume that the parts of the organizations that remain after the cuts can continue to produce at pre-reduction levels. They rarely do. For example, downsizing the Purchasing function can have ripple effects throughout the organization. And canceling one project can actually affect other projects even if they don't depend on the canceled project.

Fundamentally, organizations are systems. Moreover, they don't "factorize" easily — their parts are interconnected in ways that are outside our awareness. These interconnections sometimes propagate the effects of cost cutting. We tend not to notice these channels, in part, because they don't correspond to connections in the org chart or line items in the Chart of Accounts.

Unexpected propagation happens because the effects of cost cutting tend to travel not only along formal lines, but also along personal lines — that is, the relationships between people, and the perceptions and emotions of everyone in the organization, including the people who we believe ought to be "unaffected" by the changes.

Here are some examples of how the effects of cost cutting propagate. If your job entails estimating how much time or effort tasks require, and if your organization is in the midst of reductions, you'll do a little better if you take these effects into account.

Personal network disruption

Waves of reductions in force tend to disrupt the networks people use to find out how to do things — how to prepare requisitions, which procedures to follow, or where to find the answers to burning questions. Relocations and site consolidations have similar effects.

Change-driven chaos

The effects of cost cutting
tend to propagate along
personal lines — perceptions,
emotions and the relationships
between people

The entire organization can descend into change-driven chaos. People become distracted and performance degrades, especially when procedures and job responsibilities change rapidly. Many begin working for new supervisors, with whom they must establish new relationships. Some find themselves working for supervisors with whom they might have unpleasant history.

Termination-induced grief

When groups of friends are separated because some have been terminated, the survivors enter a period of grieving, sometimes called "survivor's guilt." Their productivity can degrade significantly.

Voluntary turnover

When things get sour, people begin to fear they will be targeted next. Those with alternatives elsewhere (usually the most talented) start job searches preemptively. Vesting schedules for stock options, profit sharing, and pension plans lose their ability to hold people, because of skepticism about the value of the underlying benefit.

The what's-the-point effect

People who notice ways to reduce costs, and people who would otherwise either contribute innovations or prevent catastrophes, start to ask, "What's the point?" They begin to feel that they won't be rewarded for their trouble, or that they might be terminated before being rewarded with the next merit pay increases, which have often been suspended anyway.

If you're weighing a decision to cut costs, estimating the full impact of these effects might improve the quality of your decision. And remember that personal network disruption, chaos, survivor's guilt, and the rest, might affect you, too. When that happens, it can degrade your ability to notice these effects. Is it already happening?  Top    Next Issue

Are your projects always (or almost always) late and over budget? Are your project teams plagued by turnover, burnout, and high defect rates? Turn your culture around. Read 52 Tips for Leaders of Project-Oriented Organizations, filled with tips and techniques for organizational leaders. Order Now!

Your comments are welcome

About Point Lookout

Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.

Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.

Related articles

More articles on Organizational Change:

Change How You Change

In the past two years, your life has probably changed. Do you commute over the same route you did two years ago? Same transportation? Same job? Same company? Same industry? Change is all around, and you're probably pretty skilled at it. You can become even more skilled if you change how you change.

On Beginnings

A new year has begun, and I'm contemplating beginnings. Beginnings can inspire, and sometimes lead to letdown when our hopes or expectations aren't met. How can we handle beginnings more powerfully?

When Change Is Hard: I

Sometimes changing organizations goes smoothly. More often, it doesn't. Whatever methodology we use — and there are many methodologies available — difficulties can arise. When change is hard, what's happening? What makes change hard?

Reactance and Micromanagement

When we feel that our freedom at work is threatened, we sometimes experience urges to do what is forbidden, or to not do what is required. This phenomenon — called reactance — might explain some of the dynamics of micromanagement.

Motivation and the Reification Error

We commit the reification error when we assume, incorrectly, that we can treat abstract constructs as if they were real objects. It's a common error when we try to motivate people.

See also Organizational Change and Project Management for more related articles.

Forthcoming issues of Point Lookout

Coming October 23: Power Distance and Teams

One of the attributes of team cultures is something called power distance, which is a measure of the overall comfort people have with inequality in the distribution of power. Power distance can determine how well a team performs when executing high-risk projects. Available here and by RSS on October 23.

And on October 30: Power Distance and Risk

Managing or responding to project risks is much easier when team culture encourages people to report problems and question any plans they have reason to doubt. Here are five examples that show how such encouragement helps to manage risk. Available here and by RSS on October 30.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenmhXARWRMUvVyOdHlner@ChacxgDmtwOKrxnripPCoCanyon.com or (650) 787-6475, or toll-free in the continental US at (866) 378-5470.

Get the ebook!

Past issues of Point Lookout are available in six ebooks:

• Get 2001-2 in Geese Don't Land on Twigs (PDF, )
• Get 2003-4 in Why Dogs Wag (PDF, )
• Get 2005-6 in Loopy Things We Do (PDF, )
• Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, )
• Get 2009-10 in The Questions Not Asked (PDF, )
• Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, )

Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500 words in your inbox in one hour. License any article from this Web site. More info

Public seminars

The Race to the South Pole: Lessons in Leadership

On 14 December 1911, four men led by Roald Amundsen reached the South Pole. Thirty-five days later, Robert F. Scott and four others followed. Amundsen had won the race to the pole. Amundsen's party returned to base on 26 January 1912. Scott's party perished. As historical drama, why this happened is interesting enough. But to organizational leaders, business analysts, project sponsors, and project managers, the story is fascinating. We'll use the history of this event to explore lessons in leadership and its application to organizational efforts. A fascinating and refreshing look at leadership from the vantage point of history. Read more about this program.

Here's a date for this program:

• Baldwin-Wallace University, 275 Eastland Road, Berea, Ohio 44017: November 7, Kerzner Lecture Series/International Project Management Day, sponsored by Baldwin Wallace University and the Northeast Ohio Chapter of the Project Management Institute. Register now.
   

The Power Affect: How We Express Our Personal Power

Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.

• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.