When to Mess with Your Bottom Line
Over the past twenty years, Hamel has authored 15 articles for the Harvard Business Review. He has also written for the Wall Street Journal, Fortune, The Financial Times and many other leading publications around the world.
Hamel's books, Leading the Revolution and Competing for the Future, have appeared on every management bestseller list and have been translated into more than 20 languages. His latest book, The Future of Management, was published by the Harvard Business School Press in October 2007 and was selected by Amazon.com as the best business book of the year.
Since 1983, Hamel has been on the faculty of the London Business School where he is currently Visiting Professor of Strategic and International Management.
As a consultant and management educator, Hamel has worked for companies as diverse as General Electric, Time Warner, Nokia, Nestle, Shell, Best Buy, Procter & Gamble, 3M, IBM, and Microsoft. His pioneering concepts such as "strategic intent," "core competence," "industry revolution," and "management innovation" have changed the practice of management in companies around the world.
Hamel speaks frequently at the world's most prestigious management conferences, and is a regular contributor to CNBC, CNN, and other major media outlets. He has also advised government leaders on matters of innovation policy, entrepreneurship and industrial competitiveness.
At present, Hamel is leading an effort to build the world's first "Management Lab." The MLab is a pioneering attempt to create a setting in which progressive companies and world renowned management scholars work together to co-create "tomorrow's best practices" today. The goal: to radically accelerate the evolution of management knowledge and practice.
Topic: Look at data
Gary Hamel: When you're going to cut costs, start with data. Which businesses are under-performing? Which product lines are under-performing? Which people are under-performing?
What I think often happens is that companies hope for some natural process of attrition. Things start to get difficult, they kind of take across the board cuts and that's almost never a good idea. I remember just recently, I was having a conversation with a CFO in a large company and they had a blanket policy that every division, every national organization, was going to have to take down head count by 10 percent. And I said, "This is across the board? No exceptions?" No exceptions, everybody has to do it, it's a mandate.
I said, "Well, surely that can't be the right way to do it." I said, "You know, you have divisions that have great growth prospects, you have others that have grown fat and lazy. Why just do it across the board?" And he said, "Because it's fair." I said, "How is that fair? I mean, you know, some business is already lean, some isn't, how can that possibly be fair?" He thought a minute and he said, "Yeah, you're right, but it's easy."
Well, easy is usually not a good criteria for making a business decision. So the starting approach for any kind of smart cost cutting, is really a very, very careful analysis of what's grown fat, what's grown lazy, where do we have great prospects, where do we don't? But cost cutting should never be uniform and across the board, number one.
Topic: Talk to people
Gary Hamel: Number two, I think in smart cost cutting, you spend a lot of time talking to people about what's happening. Clearly some people are going to have to go. How do you avoid demoralizing all the folks that are left? First you have to be honest about what's changing in the environment. That's not too hard at the moment, most people get that we're in a very, very deep recession. But you also have to have a due process and make sure that in the heat of trying to bring your costs back in line, you're not indiscriminate in how you let people go. That you're taking people one at a time, you're really evaluating their contribution, they understand what it's that person and not the person next door to them that is being asked to leave.
And when you have to cut deep enough so you feel that you're cutting, you know, not kind of the slack, not the B team, but you're cutting people out of the A team, you also want to let people know that you're going to be re-hiring, that you're going to want to re-engage them. But do the whole process in a way where you've not destroyed their loyalty, their emotional connection to the firm. That means explaining why it's happening, being sure that they understand why it's—you know, why certain people not other people, and if you can, giving them at least the hope that there is a re-hire when the economy starts to pick up.
Do all of those things and I think you can get through a lot of the cost cutting, without it undermining the morale in your company, or without finding that you've kind of cut off some of the most valuable people that you've, eaten the seed corn, as it were, inadvertently in the midst of a crisis.
Topic: Know when to hold ‘em
Gary Hamel: So I think you have to be very, very careful in the way you do this and you have to recognize that recessions are temporary. We've come out of every one, you know, during our lifetimes, we're going to come out of this one and what you often find is that the companies that had to cut less deeply, that were able to kind of soldier through, did not lose key resources. Did not bring their key capital projects to halt. Those are the companies that gain market share on the upturn. Because it is really hard to re-hire talented people- it takes a long time to find them, to bring them back on board again, make them productive. It takes time to get those capital projects underway again.
So if you can find ways of cutting less deeply through the depths of the recession, you absolutely have an advantage coming out of the recession. It's also true that, you know, some companies over-hire and I think this is usually kind of a political thing. In most organizations, we measure people's authority and status by the size of their budget and the size of their head count.
There's kind of an imperial instinct that people have, they want bigger teams, more people and so on. And so you have to keep that in check, you know, you have to keep constant attention onto all those key productivity measures and make sure that at no point, as you grow, do those things get significantly out of whack. if you're in a fast growing market, you're a fast growing company, you have to hire a bit above the demand curve, because it takes awhile to bring people on board and get them up to speed.
But you want to watch those ratios very, very carefully. Make sure that they never get out of line, that you at every moment, through the down and the up curve, are paying attention there. If you stop paying attention for a moment, it's very easy for people at all levels of the organizations to pad their teams with more people, to hire a bit indiscriminately and then you suddenly find out that when times are tough again, you have a lot of slack and you're going to have to put the organization through a lot of trauma to get rid of that.
So be careful when you hire. Don't over-hire, but also be careful not to over-cut, because coming out of the recession, the ones that have been able to maintain kind of the employment status, the capital programs, they're going to be the quickest to ramp up growth and grab the market as it emerges, as we come out of the recession.
Recorded on August 15, 2009
Business strategy author Gary Hamel offers tips on how to cleverly cut company costs without jeopardizing your future.
These modern-day hermits can sometimes spend decades without ever leaving their apartments.
- A hikikomori is a type of person in Japan who locks themselves away in their bedrooms, sometimes for years.
- This is a relatively new phenomenon in Japan, likely due to rigid social customs and high expectations for academic and business success.
- Many believe hikikomori to be a result of how Japan interprets and handles mental health issues.
How a cataclysm worse than what killed the dinosaurs destroyed 90 percent of all life on Earth.
While the demise of the dinosaurs gets more attention as far as mass extinctions go, an even more disastrous event called "the Great Dying” or the “End-Permian Extinction” happened on Earth prior to that. Now scientists discovered how this cataclysm, which took place about 250 million years ago, managed to kill off more than 90 percent of all life on the planet.
A new study discovers the “liking gap” — the difference between how we view others we’re meeting for the first time, and the way we think they’re seeing us.
We tend to be defensive socially. When we meet new people, we’re often concerned with how we’re coming off. Our anxiety causes us to be so concerned with the impression we’re creating that we fail to notice that the same is true of the other person as well. A new study led by Erica J. Boothby, published on September 5 in Psychological Science, reveals how people tend to like us more in first encounters than we’d ever suspect.
SMARTER FASTER trademarks owned by The Big Think, Inc. All rights reserved.