Best of the Issue: The Right Ways to Cut Costs

For companies in a range of industries, 2023 has shaped up to be, as Facebook/Meta founder Mark Zuckerberg has called it, a year of efficiency. That’s a euphemistic phrase for the series of layoffs, closures, and general belt-tightening taking place throughout the corporate world amid a soft economy.     June 13, 2023     Read online       The Right Ways to Cut Costs   From Daniel McGinn Executive Editor, Harvard Business Review   For companies in a range of industries, 2023 has shaped up to be, as Facebook/Meta founder Mark Zuckerberg has called it, a year of efficiency. That’s a euphemistic phrase for the series of layoffs, closures, and general belt-tightening taking place throughout the corporate world amid a soft economy. In this issue’s Spotlight, The Right Way to Cut Costs, several authors worry that this frenzy to lower expenses can result in hasty, ill-considered moves that undermine a company’s long-term growth. Ranjay Gulati, the Harvard Business School professor who wrote the article Investing in Growth Through Uncertainty, argues that successful companies must learn to play offense and defense at the same time. He cites the example of Alaska Airlines, which signed mammoth deals to buy new airplanes even as Covid-19 decimated air travel—a counterintuitive example of investing for growth even during hard times, putting a company in a position to win as the economy strengthens. In Cost Cutting That Makes You Stronger, consultant Vinay Couto and his co-authors look at how companies that successfully cut costs often struggle to grow in subsequent years, based on their study of the 1,500 largest global public companies between 2015 and 2021. Of the 201 that underwent a “cost transformation” between 2015 and 2018, only 76 experienced higher revenue growth and profit margins in the following three-year period. They identified the five behaviors that set those companies apart. And in Don’t Eliminate Your Middle Managers, Emily Field and co-authors argue that this level of talent—a frequent target for downsizing—remain vital to companies’ success. However, these roles often need to be reimagined to ensure the people in them are realizing their potential as organizational lynchpins—and this article tells managers how to do that. Finally, we have an article addressing a new challenge facing leaders at companies like Amazon, Tesla, and Starbucks: Workers’ growing interest in organizing into labor unions. In The Labor-Savvy Leader, Roy Bahat and his co-authors say many corporate leaders know little about dealing with unions and may reflexively try to push back against organizers. This article advocates a different approach: “[Leaders] can start working to reinvent corporate America’s relationship with labor so that more people can share in the rewards and companies can compete and grow in new ways.” As we approach the middle of 2023, we wish you all the best in dealing with the unique business challenges it’s presenting. Daniel McGinn Executive Editor     In the Issue: Investing in Growth Through Uncertainty   by Ranjay Gulati   When faced with disruptions and downturns, many leaders and companies instinctively focus on cutting costs to maintain profitability. But some identify opportunities and then take thoughtful action to emerge from crisis even stronger. Those leaders do so by fostering three mindsets: sensemaking in crisis, a bootstrap ethic, and stakeholder balance. Examples from Alaska Airlines, Firefly, Panera Bread, and Edward Jones show how this works in practice. Leaders who embrace these ways of thinking can chart a course for the future even when the outlook is darkest.       Cost Cutting That Makes You Stronger   by Vinay Cuoto, Paul Leinwand, and Sundar Subramanian   When companies take a one-off approach to cost cutting, they often sacrifice some of their most important investments. If cost-cutting programs are implemented in haste, little (if any) debate over the strategic intent of investments takes place. To the contrary, leaders typically dole out across-the-board targets, leaving organizations weaker, imbalanced, disjointed, and in some cases desperate and without direction. In this article the authors identify five keys to ensuring that companies build an efficient, effective culture around costs that works in both good times and bad.       Don’t Eliminate Your Middle Managers   by Emily Field, Bryan Hancock, and Bill Schaninger   Human capital is at least as important as financial capital, and middle managers, who recruit and develop an organization’s employees, are the most important asset of all—essential to navigating rapid, complex change. They can make work more meaningful, interesting, and productive, and they’re crucial for true organizational transformation. But if managers are to fulfill this promise, leaders must reimagine their roles, push to more fully understand their value, and train, coach, and inspire them to realize their potential as organizational linchpins.       The Labor-Savvy Leader   by Roy E. Bahat, Thomas A. Kochan, and Liba Wenig Rubenstein   Workers today feel less secure in their jobs and more uncertain about the future than before, and not surprisingly, a growing number of them are organizing. In fact, worker interest in joining a union, and public support of organized labor, is at its highest in decades. If business leaders stick to their old playbook, they risk permanently disenchanting their workforce and harming their brands. Instead, they must begin to reinvent corporate America’s relationship with organized labor, working with, rather than against, unions and other formal and informal structures. Indeed, in the next 20 years, the skill of leading an organized—or organizing—workforce may well become the critical leadership skill.         BROWSE MORE FROM THE LATEST ISSUE       Featured Product   HBR Guide to Designing Your Retirement   by Harvard Business Review   Retirement is perhaps the greatest and most deeply personal career transition you'll ever make. 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