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.