5. Rule One: Cut Entire Deliverables

Every organization within a company can be viewed as a business within a business, there to produce products and services for others. We call these products and services "deliverables."

Organizations may produce deliverables for external customers or for other organizations within the company.

Of course, it does no good to cut an activity that is a subset of a deliverable. You might as well not waste your money on the rest of the activities involved in that deliverable, since the entire deliverable is likely to fail.

Therefore, the first rule is: Cut entire deliverables, not activities within deliverables.

Cost-cutting efforts should trim the list of deliverables expected from each organization (demand), not constrain the expenses (such as headcount or travel) or activities (such as research) that they use to produce those deliverables (supply).

Then, managers will trim their spending by focusing on doing only those selected things. In other words, reduce demand and supply will shrink accordingly.

Why would managers cut spending rather than simply produce less with the same resources?

Budgets can be reduced by an amount equal to the cost of the deliverables which were eliminated. From an entrepreneurial point of view, fewer deliverables means less revenue for a business within a business. Managers must reduce spending to break even.

Cutting deliverables not only cuts costs. It has the added benefit of managing expectations. When deliverables are trimmed to the company's reduced spending power, staff won't burn out or cut corners and fail attempting to do the impossible.

This rule pertains to cutting costs in a single organization (a department) within a company. The next rule applies the same concept at the companywide level.