The Limits of Cost Cutting

Excerpt from: Stanley Bing, “The 0% Solution”, Fortune, Europe Edition, December 18, 2006

News comes from the Department of Labor that productivity growth in nonfarm business in the U.S. hit a critical number in the third quarter. That number was zero, as in naught, as in nothing, no growth at all, not even something you could round up to a minuscule decimal of some kind. […]

Let’s look at what forces are coming together to suppress productivity growth, to see if we can augment them in some way. […]

Second, I’m thinking that the reason we kept being more productive in the first place wasn’t so good. When I started out, my department had 20 people rushing around working very hard. Then the corporation, under pressure from Wall Street to grow our stock price every day, decided to do what analysts, investment bankers, and business reporters all agree is the most terrific thing a successful enterprise can do: fire a bunch of people and make those who remain do the work that used to be done by others. Before long, we had ten people doing the work of 20. This naturally produced impressive gains in individual productivity. Of course it did! But at what cost, I ask you. Actually, I’m not asking you, I’m telling you. A big one.

The things that’s happened now is that corporate America is just about done firing people, because if management wants to fire any more people, it’s going to have to start firing itself. That’s expensive. Firing an executive is often more expensive than retaining him.[…]