VIEWPOINT: Heads out the door-not the only answer

September 25, 2006

Aug. 25-Unemployment in Indiana has hit the highest level in three years, preliminary government figures show.

Whenever I read unfortunate news such as this, I recall a conversation I once had with a senior executive. He casually summed up his strategy for achieving supe rior financial results: "Heads out the door. That's the first thing I do. That's the only way I know with certainty that the financial results will be improved."

Heads out the door. This made me think of cattle, for some reason-a story I once heard about an unfortunate dairy farmer, from my rural childhood days. More on that later.

Most responsible corporate leaders certainly understand that times may arise when short-term cost-cutting and/or headcount reduction may become an essential component of a successful long-term strategy. It can simply be the reality of competing within a hyper-competitive global marketplace. I have been challenged to make those tough decisions myself. But when the short-term tactic of cost-cutting and head-count reduction becomes a substitute for a growth-focused, long-term strategy, the "farm" could be headed for some gloomy days at the market.

What are the keys to avoiding the "heads out the door to restore profitability" tactic? I had the pleasure of spending several years at a highly regarded Fortune 500 company that was renowned for sustained, superior financial results. The company had this mantra: "Everyone is in sales." The basis for this mantra was one word: "new." The company was obsessed with "new," which was believed to be the foundation for sustained growth: new ideas and questions, new people, new products or services, new categories, new customers, new distribution, new channels, new geography.

Staff meetings were devoted to "new." Strategies were focused on "new." Goals for "new" were linked to performance appraisals. Head-count reductions and radical cost-cutting were discussed only if "new" fell short. And then, managers who had not successfully engineered "new" were held accountable. During times of economic challenge, which prompted competitors to cut back on sales and marketing personnel, we often invested in both ideas and people. "When the compe tition retreats, we will attack" was our philosophy-counterintuitive, but successful.

When I think of the "heads out the door" tactic vs. the "new" strategy, I can't help flashing back to my farming roots, and that story of the struggling dairy farmer. Back then, the story goes, the farmer came up with a plan for turning his business around. The keys to this plan were to eliminate some of his cows-his milk-producing assets-as they were his largest expense. Investments in the farm would also have to be cut, to offset any potential reduction in milk output. The farmer's plan didn't work too well the first year. So the second year he got rid of more cows and cut investments even further. The third year, he did the same. Eventually, the farmer didn't have a farm anymore.

This summer, I returned there to visit family and drove by some of those oncestruggling farms. I noticed that some new farmers were raising bison as well as cows. And the word is they are doing quite well. A new idea, new product, new category, new market-heads actually in the door. What a concept.

McNulty is president of Skycrest Marketing Inc. in Carmel.
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