3. Unwise Approach Two: Slash and Burn

The slash-and-burn approach is even more drastic. A team of executives (perhaps with the help of external consultants) roams through the company eliminating projects, cutting specific organizations' budgets, or even disbanding entire groups.

Consider this example:

A large aerospace manufacturing company faced a cash-flow crisis due to defense-spending cuts while they were in the midst of an expensive new-product introduction.

With their traditional bureaucratic resource-management processes, top executives had little control over expenditures midway through the fiscal year. They began by building awareness of the problem in the hope that people would voluntarily cut their spending. This had little impact, since everybody felt their programs were important enough to be continued.

Next, the top executives issued edicts. They cut all outside expenditures on training and consulting. This crippled some initiatives (including a few that were addressing the cash-flow crisis), but had only a small effect on the company's total cash flow since many managers found creative ways to fund the training and consulting they needed.

Ultimately, this firm had to resort to severe layoffs. An executive task force swept through the corporation, cutting every function by a significant percentage. Some new functions that top executives didn't understand were entirely eliminated, in spite of the cost savings they were producing and over the objections of their internal customers.

These across-the-board cuts caused permanent damage to the firm's ability to compete. Once a leader in its industry, this corporation slid steadily downward until it was acquired by its competitor.

Impact: Eliminating the Good With the Bad

In a whirlwind tour of the company, a small team makes snap judgments about what's worth doing and what's not, often evaluating entire groups rather than specific investments.

Entire projects are cut, when instead they might have been trimmed and refocused on the strategic objectives that caused them to be approved in the first place.

Entire organizations are cut, when instead they might have been trimmed and refocused on just the really high-payoff things they do.

With the limited time such a task force has, it's no wonder they tend to "throw out the baby with the bath water."

This approach is a terribly crude means of governance. It cuts good investments as readily as poor ones. It's like performing surgery with a butcher's knife.

Impact: Eliminating Critical Competencies

As projects are eliminated, groups are disbanded, and people are laid off, the company loses competencies.

The competencies it cuts are typically those needed to innovate and to grow, preserving only those functions needed in the short-term to operate what the company has today.

When the time comes for growth, the company finds itself lacking the capabilities it needs to do new things. It's stuck in its smaller, strictly operational business. While it struggles to rebuild lost competencies, it's an easy target for competition.