Cutting the Fat, Meat and Bone Out of Business

There’s an alarming trend developing in the shadows of American business both large and small alike that could have a negative impact on our ability to compete both at home and abroad in the coming months and years. This trend has to do with the cuts that have been made in both personnel and overhead the past 24 months.

As business began to contract in the Spring of 2008, the first round of cuts were often necessary because they cut out the fat in an organization. Things like: duplication of services, unproductive projects and wasteful initiatives. Cutting fat is healthy in any economic scenario because it helps make an organization lean and mean.

But as the downturn deepened and accelerated, the second round of cuts moved from lean and mean to personal and painful because now more and more people were being laid off. Cutting people from an organization is like cutting the meat away from the bone. This has resulted in record U-3 and U-6 unemployment numbers over the past two years. Some months are “less bad” than previous months, but the trend continues toward higher unemployment.

There’s some discussion that the silver lining to all these personnel and overhead cuts is that 4th quarter gross domestic product (GDP) came in at a stronger than expected 5.7%. We can now expect to see all those talking heads on financial TV jump up and down and proclaim the “recovery” has taken hold and is on the way.

But these pundits (and those that listen to them), including the speech writers for the President, will most likely miss the implication of the third round of cuts that many businesses are engaged in right now. This third round of cuts will cut out, not just fat, not just meat … but bone.

There comes a point when additional cuts due to falling market share begin to affect the very infrastructure of the organization itself. Competitiveness becomes challenged because there are just not enough people to service the business that does remain. This is a position many organizations will find themselves in this year.

Right now many corporate and small business leaders are dealing with a 30% loss in business. When you’ve cut all the fat and meat that you can, and sales have declined below your fixed overhead costs, how long can you stay in business and remain competitive with the business you still have?

In the struggle to survive day-to-day, week-to-week and month-to-month, what many are missing is that business, the very lifeblood of our economy, is being cannibalized. First it was the fat, then the meat, and now the bone. 2010 will be the most challenging year any of us have ever faced.

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