4. The Fallacy of Demanding Productivity

Both the above approaches save money, but they put the entire company at risk, in both the short-term and the long-term.

What do they have in common?

Both operate under the same delusion: that organizations can deliver "more for less" simply because executives demand it.

Executives may have had success early in their careers driving the fat out of organizations through budget pressures. But can it still work?

Let's consider the belief that productivity will go up simply by pressuring an organization to do more for less.

Savings can occur only when an organization is currently wasting time or money. It can then cut the waste without sacrificing results.

However, today, after hearing the "do more for less" decree for decades, most of these obvious opportunities for savings have already been harvested.

The truth is, at any point in time, an organization is at a certain level of productivity. Future investments and good management will continually improve productivity. But at this point in time, an organization is what it is.

Given this fact, cutting expenditures will ultimately cut results, whether executives want it to or not. Some things just won't get done (or done well, or done on time).

The question is, which things won't get done. Both of the two approaches constrain the size of organizations within a company, and leave it to individual managers to figure out how to satisfy burgeoning demands with dwindling resources. Managers do their best, and consciously or unconsciously cut activities and results; but the downstream consequences generally aren't calculated.

The core issue is this: Without executive coordination, results get cut in a haphazard way. Ultimately, random degradation of internal and external results undermines a company's ability to do anything well enough to survive.

Meanwhile, staff are put in the untenable position of facing demands far exceeding resources. Reputations are tarnished, and people are burned out. The resulting resentment and cynicism further degrades productivity.

Reducing budgets without revising downward the expectations of an organization is generally unsuccessful, damaging, and cruel.

Even if it succeeds in reducing costs, using the budget process to demand more productivity masks the real problems: systemic problems like a job grading system that rewards empire building by correlating grade with headcount, or plain old poor management. If root causes aren't addressed, there's no reason to believe waste won't reappear soon thereafter.

The way to cut costs effectively is not to cut every organization's resources, but rather to cut the company's endeavors, and focus every organization in the company on contributing all it can to those key strategies while eliminating less strategic results.

Again, when budgets are cut, results will be cut, either haphazardly or in a well-planned manner. Once that's accepted, executives can focus on cutting the most expendable results in a strategic and coordinated manner.

Chapters 5 through 8 present four basic rules for strategic cost cutting.