Effective --ost --utting

Only the lazy don't speak of cost-cutting in a crisis. In practice, however, it is rare that a program of cost cutting is considered effective. Let's look at the optimal action on organizational structures from the point of view of the organization.

Elimination of superfluous levels and power structure

Cutting personnel is a traditional method of cutting costs in a crisis. And it is not a coincidence, and indeed not a secret, that the level of labor productivity in Russian companies is essentially inferior to that of its counterparts in developed and developing countries. But how can this be dealt with technically?

In many companies, especially companies that have a heavily layered structure, there is a "pathology" that makes the company accumulate middle management, believing this is beneficial. In reality, the more layers there are in a hierarchy, the slower the signals will pass through, and more importantly -- the more distorted these signals will be. The top management "thinks strategically and globally," operational managers are "absorbed in the actual business," and the middle management becomes a conveyance system for signals from the top to the bottom and vice versa. A system that sometimes atrophies and becomes a growth on the skeleton of the company. The crisis is an excellent opportunity of set the situation right.

The best thing to do in such a situation is to align and compare oneself with an international, or even a Russian, company that is similar. The alignment and comparison should be both in regard to the production and levels of power structure. Of course, it might be a long shot -- even finding a similar company might be difficult. But even if there are differences, it is worth thinking seriously about it.

When the aim is to determine which levels are superfluous, it is necessary to estimate the extent of personal liability there is on each level of the hierarchy, in a section of the operations, services and strategic control function. Of course this is only possible where the deployment system of the management are on target and indicative. The job descriptions will not help here. The candidates for reduction should be where personal liability is at a minimum. Generally this will turn out to be in middle management.

Don't be afraid of making radical decisions and put the fallout workload on the adjacent levels. Indeed they are obligated to take the fallout assignments on to themselves. In addition, the extra work burden will often prove to be minimal, and indeed it will seem logical to take on additional tasks on account of the crisis.


Compare the quality of the power structure in your company with the best matching of similar company.

Evaluate the extent of personal responsibility on each level of the hierarchy in the section of the operating, service and strategic test function.

Identify the level with the least personal liability (paying special attention to the middle level).

Divide responsibility between the higher and the lower management level, after eliminating the unnecessary level.


The amount of hierarchy and manpower has been reduced

Increased speed for signals and decisions

Improved corporate culture

Increase service effectiveness and utilize outsourcing

This measure is primarily connected with the discovery that key business processes and functions in the organization, can be served as well if not better, outside the company. Jobs possible for outsourcing may be basic processing or service functions. For example, if it is a basic processing job that is to be outsourced, decide which level in the vertical integration and focus on defined reductions. For auto manufacturing, in distribution or design; for metallurgy, in service or engineering; for the furniture business, in manufacturing or retail; for pharmaceutical companies, in the creation, aggregating or delivery of content, etc. If we estimate the main body of outsourcing will only disturb the delivery process in underdeveloped markets.

Collect the required information, gathered for every process or function that might be a candidate for outsourcing, there should be a possibility to compare with internal resources on the grounds of price vs. quality. Outsourcing the task is advisable when the difference is not dramatically in favor of internal service. It is also necessary to take into account that in crisis conditions many suppliers are willing to accept "successbased" work, so that the internal service needs to be very high quality to demonstrate its competitiveness.


Consider which processes and functioning services that can be outsourced. The strategic testing function and standardization should be accepted from consideration.

Check the market analysis of suppliers per item; divide the market into high competitors.

Evaluate price vs. quality of internal services and of external suppliers.

Discuss the possibility of "success-based" work with suppliers.

In case the market wins substantially, relinquish tasks to outsourcing.


Substantial wins considering "price vs. quality" in service delivery

And finally, it is very important in an organization to preserve a positive note. We live in a century of bad news. Mass media is basically unable to convey positive information for the majority of people or for the typical company. This means that this is a separate and critical function inside organizations during the crisis. Breakdowns and crises happen first and foremost in the mind and then manifest and take shape in the form of financial results and then organizational pathology.