Do you cut costs or innovate? This is a legitimate question and one that I think about often both as a business owner and as someone who owns a business serving other businesses. During challenging economic or competitive times, when should one focus on cutting costs to reduce overhead and support the bottom line? And when should one invest and innovate?
During the recent economic recession and now with the drop in oil prices (financially challenging times for those doing business in oil centric economies), my company, like many others, faces these seemly opposing forces; do I cut, or do I innovate? Here is what I learned:
Cutting Costs – It has been my experience that this is effective and often necessary to provide short term relief to short term economic situations. This is especially true if the organization has become bloated with inefficiency. If fact, it could be argued that occasional short term economic stress is actually good for an organization because if keeps a focus on efficiency, and in some cases can contribute positively to the morale of the organization. Strange as it may sound, I have found a team approach to eliminating waste and identifying inefficiencies actually improves morale and provides a feeling of empowerment amongst The Chariot Group’s staff.
Innovation – Innovation typically takes a longer term approach and requires two deliberate actions that are difficult in times of economic stress: change and investment. The change associated with cutting costs almost always impacts an organization and its processes – it changes the way people work and often creates insecurity and stress. Innovation, aka change, is difficult when things are good; it is no wonder that it is so unappealing when things are difficult. And as for making additional investments? It goes without saying it’s hard to spend resources when the natural reaction is to conserve.
In practice, an organization may “cut” its way to profitability in the short term. But in today’s fast changing markets will this be enough? I doubt it. The fact is that innovation must be part of an organizations success strategy at all times, but especially during challenging ones. If not, it will likely have lost not only market share but its competitive advantage and the efficiencies that accompany thoughtful, deliberate innovation.
In my view there are only two options in today’s chaotic business environment. One can either chose to affect change or one can wait and, therefore, chose to be affected by change. In other words, one can embrace change internally, proactively innovate and be the initiator of adaptive process, or can live in the comfort of the status quo and be impacted by the changes occurring externally.