OPINION

Cutting layers of management exposes strategic risks

Business-to-government executives are pressing hard to generate and maintain growth for their companies. They know the challenges, industry environment and market pressures they are facing that deter their company’s ability to grow.

Often they are seeking the ‘right’ opportunity to bid, the right business development person(s), the right capture and proposal process, and pondering what to do about a function called marketing.

And at the same time, they are engaged in relentless cost cutting exercises, consolidations and even financial restructuring… just in case.

A byproduct of one cost cutting tactic is to reduce the layers of management, gracefully or not, in the company and thereby often expanding the number of people who report to the remaining managers. The result of this cost reduction tactic has a negative, even deadly, impact on the company, which I will explain later.

Cost cutting tactics by management fall into the realm of what is known as financial reductionism. Financial reductionism is a relentless process by which management decisions are always viewed through a financial lens, i.e. the bottom line.

This reductionism, which has been underway for many years in corporate America, by nature minimizes funds for variable costs over time.

Today, the resulting effect is evident in companies that offer employees less benefits, less training, less professional development, less bonuses and raises, less R&D, and less spend on marketing, e.g. less participation at conferences, no new brochures or ads, and so on.

Unfortunately, less investment in employees and the company have the effect of curtailing creativity, innovation, competitiveness and a company’s ability to generate growth. Non-stop financial pressure becomes ingrained in the company’s culture.

Generating growth requires having the capacity and infrastructure to generate growth. Business development and capture, as business functions, must have an infrastructure and marketing ecology around them that provide particular assets for them to be able to generate growth or the company will not be successful.

Cutting costs is not a growth strategy as someone said years ago. Nothing wrong with tightening the belt but today’s relentless cost cutting is suppressing the ability to generate growth.

Let’s return to the impact of cutting the overall number of managers. There is a subtle and incredibly important consequence of managerial staff reductions. This process causes top and middle management to become increasingly engaged in routine operational and tactical business activities; they no longer have time to engage in strategic thinking.

Growth is the lifeblood of all companies. But growth should be purposeful. To what strategic end is growth being sought?

How will growth contribute to the embodiment of management’s strategic vision for the company? Who envisions what the company will be in three years? Who in management is minding the store?

You need to answer these questions to understand how your company will grow.

About the Author

Bob Davis has over 35-years’ experience in the federal information technology industry. He has held senior positions with products- and services-oriented, high-tech IT companies during his career. Bob has successfully worked for large- and medium–sized companies, and small businesses. Leadership positions have been held in business development, marketing, and program management. Bob has a doctor of management from the University of Maryland University College. He works for a medium-size company in our industry.

Reader Comments

Fri, Oct 16, 2015 Chuck VA

Very insightful article, but this should not be news to any CEO! Your people are resources needing investment equal to your infrastructure. Reducing processes not adding value to the delivered value is a solid strategy, review all processes for overall customer benefit - eliminate the "we've always done it this way" rational and you might find funding for your human resources. Managers are part of that resource minding the store.

Thu, Oct 15, 2015 David Mischbuccha

The top questions are really Who Owns the Company and what are their expectations? Institutional investors are different than mom-and-pop investors, who in turn are different from companies where former owners control the majority of publicly available stock. Their time horizons differ; some want the quick profit hit and are just traders/shorters, while others are buy-and-hold like Warren Buffett. In the government services industry, however, companies are under all types because the average pre-tax profit has been plunging for several years, and the after-tax net income has been sinking as well. Long term outlook could well be dim, whether its Trump or Hillary or Jeff Bush. Some stockholders want to squeeze every drop of cash out sooner rather than later, and don't care about the consequences of cheapo health plans, minuscule raises, and slashing of training, picnics, company food and bars, free parking, free Tshirts, bidets, and other luxuries. No worries about planning for growth; it does not take a village to do the strategic thinking, which is what the author of this column seems to think. Too many big thinkers is a waste. Almost every one in a company should be turning the crank--executing--and at the same time keeping customers and employees happy enough to leave later rather than earlier. Face it, the biz is becoming more government like, and as we all know, the USG is the ultimate nonprofit organization.

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