I was recently asked “Why is efficiency, cost cutting and revenue generating more of a focus in tough times? Shouldn’t this be good business practice ALL the time?”. My answer to this very valid question is that clearly yes, management teams should manage the entire organisation and its resources all the time.

In difficult times, depending on your sector, growing the top line organically can seem like very hard work, even impossible. This means that management teams tend to see cost reduction as the only viable way in which to deliver an improved bottom line.

In past dips in the economic cycle, the availability of capital has been (relatively) good. This has enabled some businesses to ‘buy’ top line growth through acquisitions, dominant mergers etc. In today’s environment this is much tougher to achieve leading again to the focus on cost reduction.

To answer the question directly, yes, of course “efficiency, cost cutting and revenue generating” are all areas which should be addressed by management in good times and bad. However, for the reasons stated above, efficiency, cost reduction and process improvement all receive much more attention at the lowest point of the cycle.

As the cycle works its way through, the way management address the cost issue changes. What often happens is that management teams deliver the ‘easy’ cost reductions themselves but then, still unable to grow revenue, feel that they need to find more savings. This leads them to seek external, specialist help to squeeze the extra savings out.

Careful cost management is appropriate at all stages of the economic cycle. In good times it ensures that cost becomes a source of competitive advantage and maximises profitability. In a tougher climate it helps sustain the business and, if managed proactively, means that management teams can focus on driving revenue just when it is needed most.