Cost Cutting Does Not Lead To Profitability

from the very-interesting dept

Here's something I've suspected for a while, but hadn't seen discussed anywhere. A new study shows that with all these dot com companies cutting costs to try to reach profitability they may be getting the opposite results instead. Costs are there for a reason. It's fine to try to cut unreasonable or excessive costs, but you have to spend some money to make some money. In many cases, it seems, the cost cutting ends up hurting sales as well, making it even more difficult to achieve profitability. That's why there's two sides to the cost-benefit equation... I think in the last few years people tended to only look at the "benefit" side, and now people are only looking at the "cost" side. Both views are very short-sighted. A successful business understands both the costs and the benefits of their operations. That's what capital budgeting is supposed to be all about.
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  1. identicon
    Ryan, 13 Oct 2000 @ 4:46am

    I agree

    I've definately seen this in action. People are afraid to spend money and so it can hamper progression (which tends to cripple small companies).

    link to this | view in thread ]

  2. identicon
    Bob Meier, 13 Oct 2000 @ 8:51am

    Somewhat Accurate

    Wal-Mart's success is based almost ENTIRELY on cost control and cost cutting.

    Cost cutting CAN be an effective way to improve profits, but not when you don't understand what your costs are. Don't interpret this study as "Cost cutting is ineffective for boosting .com profits." Instead, interpret it as ".com companies, like most software companies, have no idea how they spend their money."

    link to this | view in thread ]

  3. icon
    Mike (profile), 13 Oct 2000 @ 10:33am

    Re: Somewhat Accurate

    Um... I wasn't sayng "spend spend spend". I was saying you need to understand the effects of cost cutting... That's what Wal-Mart does (I assume). So, we're saying the same thing.

    link to this | view in thread ]

  4. identicon
    Cathryn Mataga, 13 Oct 2000 @ 10:57am

    String out the remaining dollars

    I suspect, with the dying dot-coms, the reason
    for cutting costs is to string out the remaining
    capitol as long as possible before the end
    inevitably comes. That is so the upper-
    management can take in a few extra months at
    their big salaries. Gives them time to look
    for new jobs also. The company, and the other
    employees don't count.

    link to this | view in thread ]


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