The Art of Downsizing – Part I – Products and Services
Downsizing is not an easy practice. Not only will it affect the individuals and their families, if the wrong line item, individual or department is the target it could be detrimental to the future of a company. Although many CFO’s may disagree, it is not just about the expense.
A company must take into account the direct and indirect value that will be lost when eliminating the expense. An example would be the impact of removing the expense of a single trade show. Sales are not the only purpose of attending a trade show. A trade show is an excellent way to introduce a new product, meet with customers with little to no additional costs, or do competitive due diligence. If a company has been attending a trade show for years and then stops, it is noticed by customers and competitors alike.
Marketing and advertising are another area commonly targeted when downsizing is necessary. Marketing and advertising are the methods used to communicate to a large group of people at a reduced cost. Unless you have methods in place to track the success of a marketing or advertising campaign, knowing its value is virtually impossible. Always have a method to track the success rate of a program. The simplest form of tracking is assigning a specific toll-free telephone number to each marketing or advertising campaign. Based on the number of calls received will allow for easy tracking.
Sometimes the perception that a product or service has reached the end of its sales cycle can many times be a mistake. Most products or services can be used for multiple markets. Do not discard a product or service until you have investigated other potential market opportunities. Many products or services, even if they cannot be used as-is in additional markets, may offer some value in new product development and reduce the timeframe of introducing a new product to market.
These are just a few of the areas that must be addressed when downsizing. The purpose of Part I is to give you some food for thought. The elimination of areas that are perceived as unnecessary expenses may be incorrect. Thorough analysis of the indirect value is also critical. The perception within the market should also be considered. How will the current customers feel if they believe that their product is no longer going to be manufactured? Is service being eliminated? The same goes for service oriented business. Downsizing can be a ticket for your competition to come in and eliminate another source of income. . .your customer. When you eliminate products or services, the potential for a reduction in revenues from current customers is a real potential. These are just a few of the many reasons that a company must investigate all of the factors involved before making a decision. Hasty downsizing decisions can be the greatest mistake any company can make if it is not thoroughly investigated. It is not a decision that should be left solely to the finance department.
During the next part of The Art of Downsizing, we will address the factors involved in reducing personnel.