Thursday, October 30, 2008

Cost Cutting

As a public company CFO, I had to make a 15% employment reduction part of a broader plan which transformed a business that was about running aground into an industry leader for creating shareholder value. As my CEO told me when I proposed the plan to him, "You can't cost cut your way to sucess." There's something to that.

If a retail company closes stores, then it will have layoffs related to the people in those stores, and perhaps some related support reductions at corporate. That's basically what Starbucks announced this morning. However, their employee relations are enlightened by retail standards, so the rest of their announcement talks about customizing their stores to neighborhoods, making them more energy efficient, and basically trying to improve their customer experience by providing a better offering of product and environment.

As long as their employees feel that the layoffs were part of this broader response to over expansion and the economic downturn, and not a knee-jerk response to Wall Street, all will be well. If they continue to feel that the company that attracted them in the first place has a plan to get better and offer more, then this will be a successful transformation. Customers will again be served by barristas with smiles on their faces.

To think about the polar opposite model, think about the major airlines.

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