When Cutting Heads Means Cutting Growth.

Yet again we read that due to the tough times, major companies are putting an embargo on recruitment and training in an attempt to contain costs. This is not a surprising action but again it is how wisely such embargos are implemented that will impact their success or otherwise. As often is the case, a blanket rule of such tough measures will end up hurting the company more than helping it. Why? Because these draconian edicts hurt the efficient units while merely getting the fat and inefficient ones to properly do the job they are being paid for in the first place.

The efficient units will be the most productive and likely the ones who can grow, but this growth will be held back by resource restraints. End result, they grow but only by overworking already productive staff, who end up leaving for an easier and often equally well-paid life. Once the exodus starts, revenues suffer and the management is berated. On the other hand, the less productive businesses, who have plenty of fat to lose end up becoming more productive and often get praised and rewarded.

Another interesting aspect of this, is when you see big companies clamping down on growth in places like Asia. This is simply making opportunities for new, smaller and more long-term thinking players to seize market share. Often this reaction is driven because US and European clients are cutting back on MR spend globally — but this is actually the time when MR companies most need to recruit staff who can develop better relationships with the up-coming local and regional clients in such growth markets. These are often cash rich, but highly relationship driven clients, who care less about your global reach and products than the calibre of the person who is available to come and see them tomorrow.

So it is wise to have a couple of KPI’s in mind before implementing a blanket rule. The first is the dependency ratio of client facing to non-facing staff, too many of the latter and no matter how good your client facing team is there are too many mouths to support overall. The second is the revenue (or net revenue) per client facing staff. This indexed to overall staff cost is a good way to target the sluggish teams and offer resource to the productive ones.

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2 Responses to When Cutting Heads Means Cutting Growth.

  1. Alistair Watts says:

    Similarly and driven by sacrosanct “global trends” investment decisions and allocation of headcount tends to be based on Corporate direction in response to “global trends”, not local conditions. Numerous examples exist, including within the market research profession, of corporate direction mandating investment of time and people in sectors within local markets where opportunities don’t exist while ignoring local growth opportunities. So the overall objective of the Corporate edict on headcount or investment may be met AND the revenue objectives achieved if local conditions are allowed to influence where the cuts and resource investments are made.

  2. Alastair Gordon says:

    Absolutely Alistair — there are some things that are core to corporate identity (e.g. any Millward Brown office needs to be able to handle a Link test!), but if you make everything mandatory then smaller offices will fall over with the strain, lose all initiative and seldom achieve objectives.

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