Have E-Business Cost Cuts Gone Too Far?

Companies have been cutting costs — and workers — left, right and sideways during the economic downturn. The downsizing is understandable, but some companies mayhave gone too far, cutting so close to the bone thatthey will find it difficult to ramp back up when timesget better.

“We’re learning that companies were very quick to cutcosts — almost too quick,” GartnerG2 analyst JorgeLopez told the E-Commerce Times.

According to Forrester Research analyst Tom Pohlmann, companies that cut budgets andtechnology plans too enthusiastically in 2001 may becaught flat-footed when an economic recovery kicks in.

Efficiency Is Essential

Carol Rozwell, vice president and research director atGartnerG2, said companies have made severalcost-cutting mistakes, the first of which was cuttinge-business budgets.

“The issue that they’ve been missing is that the realbusiness benefit comes from process improvement –making your company more efficient and eveneliminating unnecessary processes. The companies thatlooked for the quick fix and cut e-business are theones that are putting themselves at risk,” Rozwelltold the E-Commerce Times.

Companies that decided to save money by backing off from e-business initiatives aimed at customer convenience will lose out to companies that stayed the course, Rozwell said. “Astute business leaders knowthat the time to innovate and create new relationshipswith customers is now, not next year or in six monthswhen the economy gets better.”

The Trouble with Layoffs

Another cost-cutting mistake has to do with layoffs.According to Challenger, Gray & Christmas, 146,461Internet workers have been laid off since December1999. While many of those job cuts were unavoidablebecause entire companies went out of business,others could — and should — have been avoided.

“We do find that, historically, layoffs are not apermanent benefit to the company. It’s a temporaryfix,” Rozwell said. Specifically, companies tend tomandate layoffs across the board rather than cuttingback less-successful divisions and adding staff tothose expected to show future business growth.

“That is absolutely foolish. Many companies will haveto rehire the people they’ve laid off, because theywere not focusing about where the company was going,but instead based layoffs on where the company hadbeen,” Rozwell said.

Lopez said he agrees that companies should be careful where they cut jobs.

“If you feel you have to cut costs, make sure you knowwhich people are going to be important to your future.You want to be sure you don’t lose the people who cantake you forward,” he noted.

Layoffs at higher levels also may cause problems inthe future. Marketing and human resource groups at many tech firms were hit especially hard by layoffs, and that “could stymie turnaround efforts,” Pohlmann said.

Some companies have reduced staff by centralizing ITmanagement, but that creates “a battleship that can’tchange course during an economic recovery, delayingproducts as a result,” he added.

Low Morale

Even companies that attempted to avoid layoffs bymaking other cuts may have hurt their chances forfuture success. In the wake of layoffs of friends andcolleagues, as well as a general tightening of thepurse strings, the morale of many tech employees hasplummeted, and that is bad news for their employers.

“The impact to the customer is very severe when[employees] are not motivated to do their jobenthusiastically,” Rozwell said. In particular, moraleis hurt when companies institute expense controls thathurt the quality of life at the workplace, especiallywhen only low- and mid-level employees are affected.

“The demoralizing part of cost cuts is they appear tobe unevenly distributed. Companies are asking the rank-and-file employee to do things they would never ask asenior manager to do,” Rozwell said.