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How Cost-Cutting Measures Can Hurt Your Bottom Line

March 25, 2014

Despite the economic environment, there are some universal truths that businesses ignore at their own risk. One of the most important is that quality and a strong reputation are the only ways to consistently drive new business and guarantee repeat customers who stay with you for the long term.

While cost-cutting measures may seem like a good idea to solve short-term cash flow challenges, those of us who have been around the block a time or two have seen these strategies go awry again and again. Companies who adopt austere and short-sighted cost cutting measures inevitably watch as this mentality not only fails to achieve it’s the intended aim (reducing expenses), but also inadvertently create situations that hurt their long-term viability.

In this age of free information and 24-hour news cycles, companies can’t afford the bad press that is often the companion to shoddy production and oversight processes. Law suits charging companies for serving horse meat and General Motor’s recent car recall catastrophe can spell billions of dollars in fines – and even more in fees to the PR firm they hire to rebuild their brand.  

Even in an age of shrinking margins and deflationary pressures, it’s vital not to take your cost cutting ethos too far. As in the case of GM, otherwise you may find you have thrown the baby out with the bath water.

Ultimately, leadership’s critical mission is to instill in its staff an understanding that, in the end, creating quality output is better for your company than churning out products at the absolute lowest cost. As you can see in the chart and link below, the costs of ignoring this core business principal can be dire.

http://www.bloomberg.com/news/2014-03-21/gm-s-supplier-squeezing-days-gave-birth-to-flawed-models.html

The ultimate results of GM’s cost cutting measures on its stock prices

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