Cosmetic cuts damage businesses

UK firms are taking a short-term, quick-fix approach to cost cutting, characterised by investment cuts, recruitment freezes and...

UK firms are taking a short-term, quick-fix approach to cost cutting, characterised by investment cuts, recruitment freezes and lay-offs, according to a study by PricewaterhouseCoopers, writes Ross Bentley.

The report shows that 66% of UK chief financial officers concede that the costs they are currently cutting will creep back within two or three years.

Financial executives in UK companies are also likely to adopt a culture of short-term cost cuts that override the drive for long-term prosperity; 66% of UK chief financial officers admit that cuts are driven more by a desire to impress analysts and shareholders than to improve business, says the report.

The survey shows that while most UK chief financial officers understand the need for long-term strategic cost reduction, they are not practising what they preach. The gulf between theory and reality is demonstrated by a number of contradictory findings:

    • While 96% of respondents agree that significant short-term cost-cutting programmes can damage staff morale and loyalty, 80% have imposed a freeze on recruitment and nearly 64% have shed staff

    • 90% agree that during a downturn companies should invest to add long-term value to the business but 46% have deferred or cancelled investment, with another 30% cutting back on Web and e-business development

    • While 70% agree that companies often get their priorities wrong and cut what is easy to measure rather than what most needs cutting, just 38% of UK firms have a cost reduction strategy in place, the lowest in the global study except for France at 28%

  • 42% of UK respondents think it is inevitable that all businesses will use online procurement processes within two or three years, and 48% of respondents currently with no online procurement systems plan to introduce them but 58% of UK firms claim much of their use of e-technology is founded on hype and peer pressure rather than any genuine long-term benefit.

Jonathan Tate, partner at PricewaterhouseCoopers, says, "Too much cost cutting can be fatal, leaving companies under resourced for the future. UK companies are failing to differentiate between good costs and bad costs. Shareholder appeasement is winning out over long-term strategic management.

"Companies are failing to take advantage of opportunities for reshaping their cost base. Only 36% of respondents are investing more in Web and e-business development, while 30% are actively cutting back on IT investment," he says.

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