There's an alarming trend developing in the shadows of American business both large and small alike that could have a negative impact on our ability to compete both at home and abroad in the coming months and years. This trend has to do with the cuts that have been made in both personnel and overhead over the past 24 months.
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As business began to contract, the first round of cuts were often necessary because they cut out the fat in an organization. Duplication of services. Unproductive projects. Wasteful initiatives. Cutting fat is healthy in any economic scenario because it helps make an organization lean and mean.
But as the downturn deepened and accelerated, the second round of cuts moved from lean and mean to personal and painful because now more and more people were being laid off. Cutting people from an organization is like cutting the meat away from the bone. This has resulted in record U3 and U6 unemployment numbers over the past two years. Some months are "less bad" than previous months, but the trend continues toward higher unemployment.
There's some discussion that the silver lining to all these personnel and overhead cuts is that 4th quarter GDP numbers may be stronger than expected when they are released. That may well be the case, and those talking heads on financial TV will pull their heads out of the sand just long enough to jump up and down and proclaim the recovery has taken hold and is on the way.
But these pundits and those that listen to them, including the speech writers for the President, will most likely miss the implication of the third round of cuts that many businesses are engaged in right now. This third round of cuts will cut out, not just fat, not just meat... but bone. There comes a point when additional cuts due to falling market share begin to affect the very infrastructure of the organization itself. Competitiveness becomes challenged because there's just not enough people to service the business that does remain. This is a position many organizations will find themselves in this year.
Right now many corporate and small business leaders are dealing with a 30% loss in business. When you've cut all the fat and meat that you can, and sales have declined below your fixed overhead costs, how long can you stay in business and remain competitive with the business you still have?
In the struggle to survive day to day, week to week and month to month, what many are missing is that business, the very lifeblood of our economy, is being cannibalized. First the fat, then the meat, and now the bone. 2010 will be the most challenging year any of us have ever faced.
But as the downturn deepened and accelerated, the second round of cuts moved from lean and mean to personal and painful because now more and more people were being laid off. Cutting people from an organization is like cutting the meat away from the bone. This has resulted in record U3 and U6 unemployment numbers over the past two years. Some months are "less bad" than previous months, but the trend continues toward higher unemployment.
There's some discussion that the silver lining to all these personnel and overhead cuts is that 4th quarter GDP numbers may be stronger than expected when they are released. That may well be the case, and those talking heads on financial TV will pull their heads out of the sand just long enough to jump up and down and proclaim the recovery has taken hold and is on the way.
But these pundits and those that listen to them, including the speech writers for the President, will most likely miss the implication of the third round of cuts that many businesses are engaged in right now. This third round of cuts will cut out, not just fat, not just meat... but bone. There comes a point when additional cuts due to falling market share begin to affect the very infrastructure of the organization itself. Competitiveness becomes challenged because there's just not enough people to service the business that does remain. This is a position many organizations will find themselves in this year.
Right now many corporate and small business leaders are dealing with a 30% loss in business. When you've cut all the fat and meat that you can, and sales have declined below your fixed overhead costs, how long can you stay in business and remain competitive with the business you still have?
In the struggle to survive day to day, week to week and month to month, what many are missing is that business, the very lifeblood of our economy, is being cannibalized. First the fat, then the meat, and now the bone. 2010 will be the most challenging year any of us have ever faced.
