April 4, 2020
The irony should be lost on no one that the management technique likely to lead to the failure, or at best relegation to second-rate status, of many U.S. firms contending with the Chinese coronavirus does, in-fact, also have its origins in China.
Lingchi is an ancient Chinese torture tactic which can be translated to mean “slow-slicing” or more commonly, “death by a thousand cuts.” Just as it sounds, the technique was a lengthy process wherein execution was wrought through the administration of many hundred to a thousand or more brutal flesh cuts, one by one, until the accused expired. In the modern lexicon, “death by a thousand cuts” has become a figure of speech that refers to any catastrophe which occurs after many small failures; or a major, negative outcome which results from a series of smaller, less significant breakdowns.
Watching a great number of poorly run firms engage in the managerial equivalent of Lingchi in the past 3+ weeks has been depressing to say the least.
It was without a doubt that this crisis, to a far greater extent than 08-09, would challenge the abilities of American business leaders like at no time in generations. What has been surprising is the degree to which firms have immediately and unimaginatively stood on the lever of cost cutting. As if the entire U.S. economy has gone straight to zero, firms are slashing their workforces, shuttering production indefinitely, cancelling investment, and seeking full-on abatements for monies owed to others like rents, lease payments and interest. These firms will pay for this mistake on the other end of this. Indiscriminate cost cutting is a tool of the weak and the unimaginative, and it never pays off.
That’s the point for the week.
Nearly 100 years ago, Henry Ford said, “Cutting wages is not the way to prosperity.” Layoffs and wage cuts only serve to weaken organizational capability – both during a crisis and on the other side of it. Enlightened firms look for ways to take share, to utilize their fixed and human assets to expand into high-demand categories (adjacent or otherwise), to employ teams to execute needed capex, maintenance opex, training and other housekeeping initiatives which build a stronger organization. These firms understand the difference between good cost and bad cost and execute accordingly.
Always, but especially during downturns, well run teams are hawks on bad cost – cost that cannot be tied to an increase in revenue or gross profit. These firms are willing to invest in good cost. But bad cost is unmercifully torn out. It is ballast that must be thrown over in any business environment, bull or bear. In all cases though, leaders must remember that cost often has names and faces attached, and that one should never ask another to do something they won’t do themselves.
In too many cases, these thousand cuts are unfortunately not being equitably administered. There is no quicker way to destroy the morale and productivity on an already hurting team than to exempt the haves from the pain the have-nots are feeling. In one case here in NE Ohio, for example, a large employer is furloughing tranches of salaried associates for months without pay. Meanwhile, executives are receiving pay cuts for the same duration, with well over half of the cut simply deferred. That’s right; while the rank and file suffer for weeks and weeks with zero income, the leadership team will receive nearly all of their pay. It is decisions like these which, I can virtually assure you, caused this company and others who behave likewise to underperform their peers in the first place. Poor management leads to poor outcomes, period. Too, these decisions result in a steady loss of quality contributors who progressively tire of being treated poorly by tone-deaf leadership teams who implicitly communicate that not everyone is in it together, causing an already bad situation to spiral downward further. Cut, cut, cut.
Winning firms also understand the long-term implications of cutting. They know that repeated layoffs, merit freezes, and other take-aways over time cement a reputation in their communities and among retained search firms of an organization in decline, of cultural toxicity, and of a lack of forward opportunity for new hires. What’s more, each round of cuts has a pummeling effect on quality survivors, many of whom, at the first sign of economic recovery rush for the exits and more vibrant businesses and cultures. These winners also understand that putting something off doesn’t actually make it go away.
The costs being deferred or even abated during this crisis will eventually come due. The fiddler always requires payment. These cuts only mask fundamental weaknesses in firms with structural issues and/or awful management teams. Clever boards and LPs will be those who use the opportunity of this management imposed quiet time to address these issues. Waiting for some elusive “all clear” date is going to be too late. Winners will be those who act now to stop the cuts and the focus on retrenchment in favor of applying resources to immediate opportunities to move their businesses forward.
Every day in business, like life, is a choice. In this it is between cutting or not, between winning or losing, between curling up in a ball or aggressively taking share, and finally, between accepting poor leadership or demanding something better. There’s death by a thousand cuts. Or there’s living, to wake up every day intent on achieving something better, and simply treating others the way you’d want to be treated.
So, cut cost selectively. Attack bad cost.
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