Saturday, September 10, 2011

You cannot cut yourself to growth!

I recently attended a Turnaround Management Association (TMA) conference that whilst many would find uninspiring (i.e. my wife), I found very interesting. As with so many conversations and presentations related to discussing a Turnaround, you will often hear the phrase "stop the bleeding". Typically this refers to stopping a cash hemorrhage on a business that is putting the company in financial distress. And, again, typically, this will lead to considerable cost cuts in the business to reduce the cash outflow.

Whilst I firmly support the need to cut costs where necessary, should a company be in financial distress, this is only a short term solution. Quite simply:

"You cannot cut yourself to growth!"

Underpinning any Turnaround effort is the need for a growth strategy. Simply cutting costs when competitors are actively trying to capture market share is a recipe for disaster. Don't get me wrong I have no issue with a smaller, leaner organisation coming out of a cost reduction program however this in itself does not create a sustainable advantage.

From a timing perspective, "stopping the bleeding", needs to be undertaken as quickly as possible where a company is in financial distress. In part, the benefit of stabilizing the cash flow situation is to allow the organisation breathing space to develop a growth strategy. This is particularly relevant where companies are in  a critical and often sudden state of financial distress.

Remember at the end of the day it is called a Turnaround and not a Standstill. At the forefront of any Turnaround professionals' mind must be a focus on reducing costs and setting the business on a path for growth. Simply cutting costs does not grow the business. 

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