There is a big difference between cutting costs and saving money.  Although both are looking to free up budget resources, saving money is helpful while cutting costs is harmful to organizations.  Here’s an example to illustrate the difference between the two.

To save money, you and your family can turn off lights in rooms without occupants.  To cut costs you can turn off lights in all the rooms (occupants or not) and stumble around increasing the risk of falling and hurting someone.  Too often businesses mistakenly believe cutting and saving are synonymous.  Ask these questions to determine what’s happening in your company.

To save money does your organization:

  • Spend less because it didn’t need to be spent in the first place?
  • Prioritize across the company, instead of within a department?  More importantly, does your company have the discipline to de-prioritize?
  • Use the occasion as an opportunity to realign and agree on strategic initiatives?

To cut costs does your organization:

  • Play “I told you so” political games by intentionally cutting costs in areas they know will be painful to another part of the business?
  • Eliminate staff/hours without eliminating work? **
  • Change the level of service it delivers to customers?

Companies that save money check room for occupants.  They examine consequences to the firm before turning off lights.  At the other extreme, cost-cutting companies stumble around in the dark hurting themselves, their employees and their customers.  Some good ideas (and one I don’t favor) here.

Asking employees to shoulder added burdens through more work is a management failure to prioritize and set direction.  Providing inferior products or service to customers is an open invitation to your competition.

The pivot point: when times are tough we owe it to employees and customers to save money before cutting costs.

** I call this the “Golden Employee Paradox”.  Companies think they are doing a good thing by firing marginal employees first.  But since the workload doesn’t change, remaining “golden” employees must do more individually to maintain the same output.  The people who remain are the stronger ones who have employment opportunities elsewhere.  Paradoxically, the very people the company wanted to save in the first place leave as fast as they can.

Cutting Costs vs. Saving Money
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  • Enjoyed reading this Andrew! 🙂 Of course, there is a thin line between saving money and cutting costs and sometimes organizations fail to understand the difference. This is worth sharing so that is what i’m going to do! 🙂

  • You may also enjoy this article: How Layoffs Hurt Companies – Knowledge@Wharton http://whr.tn/22xxfbo

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