Simon Young advocates a tripartite approach to essential cost cutting
For many firms, the next few months will be crucial for their survival, as the possibility of recovery is tantalisingly dangled in front of them. Will their cash last until they can take advantage of such recovery, or will the efforts which they, and in many cases the bank’s “intensive care” department, have put into staying afloat prove to be insufficient in the end?
Three ways to cut
Cost cutting comes in three guises. The first is reducing future costs by making current investment, eg acquiring a new IT system to drive increases in productivity. For firms in trouble, this is not relevant. The second is cutting down input costs because outputs have diminished. The obvious example is cutting staff when there is less work. Most struggling firms will have had at least one round of such changes.
The third, however, is attempting to cut the cost of inputs for a constant level of outputs, ie to make genuine productivity savings. Here, firms
