In the fast-paced world of corporate strategy, the allure of quick fixes can be irresistible, especially for consulting firms and C-suite executives under constant pressure to deliver results. One of the most popular, yet fundamentally flawed, approaches is the reliance on a well-worn blueprint to “cut costs.” This formula—downsizing, offshoring, mass layoffs, and initiating stock buybacks—has become the go-to playbook for many companies seeking to appease shareholders and boost stock prices in the short term.
This strategy is often rewarded by the stock market with an immediate increase in stock prices. For many CEOs and CFOs, whose compensation packages are heavily tied to stock performance, the temptation to implement these measures is strong. However, this focus on the stock price as the ultimate measure of success is not only short-sighted but also dangerous for the long-term health of the company. It’s a strategy that prioritizes immediate gratification over sustainable growth, much like an addiction to a quick high that ultimately leads to a devastating crash.
The Flaws in the Quick-Fix Approach
Let’s examine why this approach is fundamentally flawed and how it can backfire spectacularly:
1. Layoffs Kill Morale:
Layoffs don’t just affect those who lose their jobs; they devastate the morale of those who remain. When a company decides to lay off employees, it sends a message that loyalty and tenure don’t matter. A striking example is Caterpillar Inc., a heavy equipment manufacturer that underwent significant layoffs during the downturn in the early 2010s. Long-time employees were let go, and the remaining workforce faced uncertainty and low morale. The ripple effect was a decline in employee engagement and productivity, making it difficult for the company to maintain its competitive edge.
Such actions create a toxic environment where employees are constantly looking over their shoulders, wondering if they might be next. Productivity drops as employees become disengaged, and the company’s culture deteriorates. In the long run, this can erode the very foundation of the organization, making it less competitive and more vulnerable to external challenges.
2. Revenue Issues Remain Unaddressed:
Cost-cutting measures might temporarily boost the bottom line, but they do nothing to address underlying revenue problems. A case in point is General Electric (GE), a conglomerate that has been struggling over the past decade. GE’s leadership focused on cutting costs, including multiple rounds of layoffs, to satisfy shareholder demands. However, these cuts failed to address deeper issues in the company’s core businesses. Despite the short-term boost in stock prices, GE struggled with declining revenues and a weakened market position.
The lesson here is that without a focus on innovation, customer satisfaction, and market adaptation, cost-cutting is just a band-aid on a much larger wound. The company might save money in the short term, but it risks losing relevance in the market. This is especially true in today’s fast-paced business environment, where customer loyalty can shift quickly in response to perceived corporate missteps.
3. Quality and Innovation Suffer:
After layoffs, remaining employees often find themselves overburdened, taking on the responsibilities of those who were let go. This is particularly true in industries like manufacturing, where expertise and experience are crucial. For example, Boeing, an aerospace manufacturer, faced significant challenges after implementing layoffs as part of its cost-cutting strategy. The reduction in workforce led to delays in production, quality issues, and ultimately, a loss of trust among key customers.
This situation is exacerbated when top executives continue to receive multi-million-dollar compensation packages while the rest of the workforce is asked to do more with less. The disconnect between leadership and employees grows, leading to increased turnover, lower quality outputs, and a general sense of disillusionment among staff. This quiet revolt can be the beginning of the end for a company that relies on its people to drive innovation and maintain its competitive edge.
A Sustainable Approach to Long-Term Success
So, let’s talk about how I would work with a company feeling the squeeze on their bottom line and needing to take action. Before diving in, I’ll address the biggest downside to this approach right off the bat: it’s not fast. Taking this route is slow, and it could take up to 1.5 years to reach steady state, with potential setbacks along the way. If layoffs are the crash diet, my approach is the lifestyle change—it takes longer, but you’ll keep the weight off forever.
However, I understand that a slower, more deliberate approach may raise concerns, especially in an industry where quick results are often demanded by stakeholders. Executives might worry about the cost implications, the time required to see tangible outcomes, or potential pushback from shareholders who expect immediate returns. These are valid concerns, and it’s important to address them directly.
First, while the initial investment in a comprehensive, sustainable strategy may seem high, the long-term return on investment is significant. Companies that prioritize operational excellence and continuous improvement typically see not only a stabilization of their bottom line but also an increase in profitability over time. This is because the efficiencies gained through streamlined operations, improved employee morale, and customer satisfaction directly contribute to the company’s financial health.
Second, regarding time, it’s true that this approach requires patience. However, the gradual, consistent improvements build a strong foundation that protects the company against future market fluctuations. While short-term gains from layoffs may provide a quick boost, they often lead to long-term instability. On the other hand, a strategy focused on sustainable growth ensures that your company remains competitive and resilient in the face of industry challenges.
Finally, shareholder concerns about delayed returns can be mitigated through transparent communication and by demonstrating the value of a long-term strategy. Companies like Toyota, which have long embraced lean manufacturing principles, have shown that a focus on operational excellence can lead to sustained market leadership and shareholder value over time.
Let’s get into it:
1. Create a Plan and Communicate It Widely
The first step is to create a comprehensive plan that touches every aspect of the company. This plan includes specific goals, targets, and checkpoints to review progress, with built-in flexibility to adjust based on market response. The plan is communicated company-wide, much like a military operations order. In military terms, the general has a mission, and subordinate commanders create missions for their specific commands based on the general’s mission. You can see a great example of this in Band of Brothers, where the initial plan is briefed to a small team of leaders, and then the room fills up as everyone is brought in to understand their roles.
Every employee must understand the intent, what other departments are doing, the goals for their department, and the most critical tasks. No one is left in the dark; even the lowest-level employee will know what is happening in the company. This approach significantly boosts engagement and morale, which are crucial for executing the steps that follow. Your company is about to embark on a difficult journey, and everyone needs to be on board.
Creating and communicating this plan is not just a top-down exercise. It involves collaboration at all levels, where department heads work closely with their teams to translate the overarching strategy into actionable steps. This ensures that the strategy is not only understood but also owned by everyone in the organization. The transparency and inclusivity of this process are key to its success.
2. Cuts to Executive Compensation
Leadership by example is paramount. If the company is asking employees to make sacrifices, whether in the form of pay cuts, increased workloads, or other measures, the leadership must also share in these sacrifices. This is not just a symbolic gesture; it’s a powerful message that the company’s leadership is committed to the long-term success of the organization and is willing to shoulder the burden alongside their employees.
A great corporate example of this is when Nintendo’s CEO, Satoru Iwata, took a 50% pay cut in 2014 to avoid layoffs during a period of poor financial performance. His actions demonstrated a commitment to the company and its employees, which helped maintain morale and ultimately contributed to the company’s recovery. Iwata’s decision was a clear statement that the health of the company and the well-being of its employees were more important than short-term personal gain. This kind of leadership fosters trust and loyalty, which are invaluable when navigating tough times.
When executive compensation is aligned with the long-term health of the company, rather than short-term stock performance, it sets the tone for the entire organization. Employees are more likely to stay motivated and engaged when they see that their leaders are genuinely invested in the success of the company and are not just looking to line their own pockets.
3. Addressing Revenue Loss
This is the sales team’s opportunity to address the market. We need to build out a strategy that will at least hold our ground—no more sales losses. Whether the market is contracting or customers are moving to the competition, we need to attack the issue fiercely. Understanding our customers deeply is key. If we know why people buy from us, we can generate sales even in the toughest marketplace.
When I consult with companies, the first question I ask the sales and marketing team is, “Why do people buy from us?” Typically, I get a variety of answers, which we then rank to see if there’s agreement. Often, we discover gaps in our understanding of the customer. For instance, why does someone choose John Deere over Caterpillar, or vice versa? The machines might be similar in performance, but the relationship with the company often makes the difference. Whether it’s at the dealership level or in corporate negotiations, the trust built through personal relationships is crucial.
To truly address revenue loss, it’s not enough to just understand the reasons customers currently buy from you. It’s equally important to understand why potential customers are choosing your competitors. This requires honest introspection and sometimes difficult conversations with your sales and marketing teams. Are there areas where your competitors are outpacing you? Is there a gap in your product offerings or customer service that needs to be addressed?
This is where a deep dive into customer data and feedback becomes essential. Surveys, customer interviews, and even direct conversations with lost clients can provide insights that help refine your strategy. The goal is to build a sales approach that is proactive, not reactive, one that anticipates customer needs and positions your company as the go-to solution provider in your industry.
4. The Hiring Freeze
Part of the communication plan is to implement a hiring freeze for at least the next 12 months, except for entry-level positions. Jobs will only be posted internally. Additionally, instead of layoffs, we will identify lower-priority positions. Yes, this means that people in these positions will know they are in a low-priority area, but that’s okay because we’ve made it clear in our communication plan that we aren’t doing layoffs. We’re resetting because we’ve gotten fat in areas that don’t make sense.
This area presents a major leadership challenge, and every manager in the organization needs training on how to handle these conversations. I’ve seen managers misuse this information to bully employees into quitting, which has a worse negative effect on morale than layoffs do. This creates a toxic environment, and toxic workplaces lead to rework, safety issues, quality problems, and lawsuits.
During the hiring freeze, the focus should be on maximizing the potential of existing employees. This can be achieved by cross-training, where employees are trained to take on tasks outside their usual roles, allowing for greater flexibility and coverage across different functions. It’s also an opportunity to identify and nurture internal talent, giving employees the chance to step into roles with more responsibility.
Moreover, by restricting job postings to internal candidates, the company fosters a culture of growth and advancement from within. Employees feel valued and see a clear path for their career development, which can boost morale and retention. Managers, on the other hand, need to be transparent about the reasons for the hiring freeze and the expectations from the team during this period. Clear, honest communication is key to ensuring that this approach does not backfire.
5. Operations Excellence
Achieving operational excellence is where you’ll encounter the most resistance. Improving this area means ruffling a lot of feathers, changing workstations, and disrupting workflows that have been the same for years. That’s why the communication plan I mentioned earlier is so crucial. Being operationally excellent is not an easy task, and it genuinely requires every single person in operations to execute their tasks with precision and dedication.
Operational excellence isn’t just about making things more efficient; it’s about creating a culture where continuous improvement is embedded in every aspect of the business. The people who know best how to improve working conditions and increase throughput are those doing the work every day. They are the ones who face the daily challenges, from dealing with out-of-position parts to managing workloads that seem insurmountable.
To achieve operational excellence, it’s essential to listen to these frontline employees. They have the insights needed to make meaningful changes but often lack the incentive to speak up. Leaders must understand they don’t have a monopoly on good ideas and create an environment where everyone feels comfortable making recommendations.
This is where the concept of TIMWOODS comes into play. TIMWOODS is an acronym that stands for the eight types of waste in lean manufacturing: Transportation, Inventory, Motion, Waiting, Overproduction, Overprocessing, Defects, and Skills (or unused talent). By identifying and eliminating these wastes, companies can streamline operations, reduce costs, and improve quality.
For example, transportation waste might involve moving materials or products unnecessarily, while motion waste could include employees walking long distances between workstations. Overproduction and overprocessing often occur when companies produce more than what is needed or add unnecessary steps to a process. Defects and waiting time also contribute to inefficiencies, and underutilizing employee skills can prevent the company from reaching its full potential.
When I was working with a manufacturing client, we implemented a rigorous review of these wastes on the shop floor. The results were staggering. We cut cycle time by over 50% and freed up 84% of their floor space. These improvements were driven by the employees themselves, who, when given the opportunity and the right tools, found innovative ways to streamline operations and eliminate waste.
6. The PMO and Steering Committee
Managing all this change requires structure, and that’s where a robust Project Management Office (PMO) comes into play. The PMO acts as the nerve center of the transformation, coordinating all the moving parts of the project to ensure that everyone stays on track. They are responsible for tracking progress against the plan, managing budgets, and ensuring that resources are allocated efficiently.
The PMO also plays a critical role in maintaining communication between different departments and ensuring that everyone is aligned with the overall strategy. They are the ones who ensure that the company’s R&D spending is controlled, with clear guidelines on how funds can be used and a focus on projects that align with the company’s strategic goals. The leader of the PMO has a direct line to the C-suite, ensuring that any issues are escalated and addressed promptly.
But the PMO doesn’t operate in isolation. The steering committee, on the other hand, is the brain of the entire plan. This group, typically composed of senior leaders from across the organization, oversees the strategic direction of the project. They meet regularly—monthly in the early stages, with the frequency decreasing as the project progresses—to review progress, address challenges, and make any necessary adjustments to the plan.
The steering committee is also responsible for recognizing and rewarding teams and individuals who are excelling. This recognition can take many forms, from public acknowledgments during meetings to bonuses or other incentives. Recognizing and celebrating success is critical for maintaining momentum and keeping the entire organization engaged in the process.
Moreover, the steering committee’s role extends beyond just managing the current transformation. They are also responsible for ensuring that the changes made are sustainable in the long term. This means setting up mechanisms for continuous monitoring and improvement, even after the initial project is completed.
7. The Steady State
Soon, continuous improvement becomes a way of life. The culture of the company shifts; people step up, ideas flow freely, and teams embrace change. Everyone understands the company’s priorities and works together to achieve them. Steering committee meetings become quarterly events filled with good news, and the company finds itself on solid ground after 18 months of hard work.
The challenge now is to sustain this cultural shift. Keep doing the most important things. You’ve made excellence a habit—don’t lose ground. Now, you’re ready to move forward, outpace the competition, and dominate the marketplace. Your company is healthy, the culture is positive, and records are consistently broken.
Taking this approach is a journey, and it’s a tough one. It isn’t easy, and it’s slow. You’ll get punished by Wall Street in the beginning until the results start coming in, but in the end, you become a long-lasting, safe place for employees and investors.
Which path do you choose?
Build a Stronger Future Together
As a leader in the heavy equipment industry, you know that quick fixes aren’t the answer. If you’re ready to invest in a strategy that drives long-term success and operational excellence, let’s talk. With my experience and deep understanding of your industry, I can help you navigate the challenges ahead and build a resilient, market-leading company. Reach out today to start the conversation and take the first step toward a stronger future for your company.