×

Businesses Run Risk Of Cutting Talent To Cut Costs

vault_logo_2.jpg

Over at The Daily Beast earlier this week, Tina Brown penned a scathing analysis of the current state of the media industry, and placed the blame for its plight at the feet of its managers.

Sound surprising? Didn't think so. Even less surprising is the realization that media isn't alone, and that there’s a common thread linking several of our ailing industries at present. Here's Brown’s explanation:

"What do cars, debt risk, and collapsing television networks have in common? The suits running them all lose sight of what they condescendingly call 'product'—i.e., whatever it was that motivated the company's spirit of excellence in the first place. The trouble is, those guys and their appointees don't seem to be the ones who are leaving, do they? Indeed, the recession is giving many of them air cover. 'It's not my fault; it's the times we live in.'"

A more succinct summary would be hard to find, and the inherent lessons are legion. Bearing in mind what we've seen in the recent past, it's probably reasonable to expect that it will serve as prologue to more of the same in the immediate future: People looking out for themselves rather than what's best for their business. (How many middle managers are going to recommend downsizing their own position to save the creators and producers of products working under them?) That’s one reason we’re seeing a growing recognition that very few companies are going to come out of the current downturn without relying on some sort of outside help—a.k.a. consulting firms.

As unpopular an idea as getting a bunch of outsiders in to assess your firm’s strengths and weaknesses can be, the flip side of the coin—sticking your head in the sand, or trusting to instinct when making cuts—can be just as dangerous.

Just as there are significant dangers to any business when the time to make cuts rolls around, so there are different types of danger depending on who is doing the cutting. A long-tenured boss may factor in questions such as loyalty, or self-preservation, or may simply be too remote from the production end of the business to see where the “real” work is—or isn’t—being done. Others, meanwhile, may seek to spare those in their own departments, even if that comes at the expense of other parts of the business.

Hiring a consultant can be equally fraught with danger. There’s a risk when an “outsider” assesses any organization that they see people whose results may be intangible as somehow less valuable, and therefore easier to dispense with in a downturn. In her blog (which turned out to be somewhat prescient) Tina Brown wrote at length about the problems besetting the likes of the Tribune Company , which has consistently cut costs by downsizing its editorial and journalistic staff, and is now officially bankrupt. In arriving here, Brown argues that the company has cut away too many of its assets—the people that produce the content that made the organization’s reputation—in an attempt to attain positive short term financial results. She even cites an example—which may or may not be hypothetical—of a Pulitzer-winning journalist being asked to produce an additional five articles per week, with the result being an overall drop-off in the quality of that journalist’s work.

    • Jobless Claims at 26-Year High; Import Prices Fall

Any organization lacking talent and creativity doesn’t have a whole lot left to manage, and there comes a point where the benefit of cutting costs is outweighed by the harm done to the organization by those cuts, as seen in the example above. For all companies, balancing the need for short-term survival with the ability to thrive in the long term is crucial. While the former is the highest priority for any troubled company right now, failure to achieve the latter may just forestall the inevitable for an unspecified point in the future.

That may well be the biggest challenge facing anyone being given an ax to wield right now. Whether that’s a manager, a consultant or a magic 8-ball, the danger of not meeting that challenge and cutting talent at the expense of “suits”, as Tina Brown puts it, is that "Perhaps the diaspora of talent will re-form and succeed while the companies who ejected them collapse and disappear."

________________________________

Phil Stott is a staff writer at Vault.com. Originally from Scotland, he now lives in New York, and has also lived and worked in Japan, South Korea and Eastern Europe.

Comments? Send them to executivecareers@cnbc.com