Cutting Back Costs: Is It Productive or Counterproductive to Business Growth?

Volatility is a natural phenomenon in markets, and once we take into account that consumer demand can also shift at the flip of a coin, it’s no surprise why established businesses today are expected to be flexible and ready to change at a moment’s notice. As a result of these constraints, cutting back costs and reducing overall expenses incurred across different business areas is a common strategy many brands employ to help keep operations in check while they go through a transitionary period.

However, while these approaches may sound perfectly fine on paper, there’s never a guarantee that increased savings by way of cost reduction will help keep a company afloat and operations running smoothly. And while most can get away with a tighter budget unscathed, prolonged exposure to limited resources and less optimal capacity may be counterproductive to growth and even lead to more issues down the road.


Lowering Costs May Come At The Cost Of Innovation

Some would argue that drastic times call for drastic measures, and looking back at the height of the global pandemic, lay-offs and reduced budgets were commonplace no matter the industry. But, while these may have worked as a temporary precaution against economic disruption, there’s no denying that lowering costs hurt research, development, and innovation as a whole.

That being the case, while it may work under specific circumstances, cutting back costs should never be a first-priority option because the disadvantages may offset any benefits you expect to gain in return.

Reduce Costs Where Quality Is Not Compromised

Firstly, on the topic of when cutting back costs is justifiable, your main concern should always revolve around quality assurance and that the standards your products and services uphold are never compromised as a consequence of reduced spending. Specifically, these come with the territory of (1) connecting with better suppliers, (2) investing in emerging technologies, (3) onboarding brand-new talent, and strategies that increase value.

  1. Connecting With Better Suppliers

    While preserving business relationships with suppliers you’ve started with may seem like the sensible option, business leaders must understand that evaluating your sources is a competitive market. So, if you can find more affordable knob cylinders for your home renovations or source hardware tools for better value, cost-efficiency in this regard is highly recommended.

  2. Investing In Emerging Technologies

    New technologies are well-known for introducing quality of life improvements, but when emerging tech manages to turn conventional means of production obsolete, refraining from the upgrade is akin to business suicide. In this scenario, you’re giving up the first-mover advantage, and if you don’t grab the cheaper opportunity now, the entry price might skyrocket later.

  3. Onboarding Brand-New Talent

    Lastly, while there’s merit to cultivating talent that’s currently present in your team, companies must never shy away from onboarding new people. And while their skills and background are your criteria for hiring, you can never gauge their true potential until you have them integrate into the operations. And, who knows, you might just find that diamond in the rough.

Avoid Too Much Drastic Change And Disruption

On the other hand, any cost reduction measures that are scaled toward too much change and disruption to your core operations is something you typically want to avoid. And while there are instances when these can work without a hitch, you run the risk of introducing inefficiencies and errors that can’t be resolved within your internal control. So, keep in mind that you should (1) protect your core business functions and (2) never trade short-term servings for cumulative costs.

  1. Protect Your Core Business Functions

    Modern entrepreneurs are always searching for the latest trend, and with Mcdonald’s entering the metaverse, more will try their best to make the most of new platforms. However, in the case of cutting back costs that directly affect your core functions, these drastic changes may make adapting a grueling process. And when conflicts arise, the amount saved might not warrant all the subsequent headaches you had to handle.

  2. Short-Term Savings But Cumulative Costs

    Another common cost reduction measure that most businesses utilize is one-off payments that are significantly more affordable at initial measurement but accumulate extra costs over time. And while it can be helpful at first and reliable if you can switch things out earlier than expected, holding onto these for too long hurts you in the long run. Therefore, moving away from these measures is far better when taking into account long-term effects.

Seek Balance But Never at the Expense of Your Goals

Overall, when it comes to cutting back costs in a business, it’s always better to seek balance and never go overboard because these things straddle between a fine line of working out and going horribly wrong. At the end of the day, it should never come at the expense of your goals, so treat every situation differently and gauge its effects according to the circumstances.

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