Is cost-cutting driving your customers away from you?

Publication Date: 
Jan 29

Just about every company faces tough choices about how to improve operations in an increasingly tough environment. Companies need to be careful that short-term cuts don't lead to long-term pain.

The worst thing companies can do in the "Great disruption" is to stop investing in innovation. Companies might think that innovation and survival are discrete choices. They are not. Companies that stop innovating are sowing the seeds of their own destruction.

Customer service is another investment companies should cut cautiously. Here's two examples (from the USA) of "cost cutting" actions of companies that put them at risk of losing loyal clients

  • American Express: In a bid to reduce payment defaults by small businesses, froze all cards and capped spending on corporate cards issued to Innosight because of a delay by one cardholder - and they are now looking for a new corporate card provider.
  • Hertz: Cut staff at airport counters, resulting in Gold-level loyalty customers having to wait over an hour to rent a car... some people decided to go with Avis instead.

In these turbulent times, customers demand more value for money. Even if you are in a position to provide a less valuable product to the customer without damaging your brand, your customers are going to expect to pay less for it, which puts you on a spiral that can only end in selling nothing for nothing!

Those of you in the Yellow Bridge community will recognize these as examples of companies who, under pressure to provide a "quick-fix", are myopically resorting to initiatives in the Known Domain, and are thus compromising on the value they deliver to their customers and putting their long-term competitive advantage at risk at the Core Level.

Where are you investing your leadership energy? Are you pressuring your team to provide a quick-fix and getting knee-jerk responses? Or are you taking the Yellow Bridge approach to create exponential value on a daily basis?

Adapted from an article by Scott Anthony on HarvardBusiness.org Voices.