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US companies go the
cost cutting way
Employees
working for corporate America, even in the IT sector, are taking the cost
cutting trend in their stride, realising that the measures are intended to
align companies towards long-term growth, writes Mohan Babu
This week, in
an unmistakable sign of the times we live in, the Fortune 500 Company that I
consult with did away with free coffee which employees were entitled to. A
move that would have been unthinkable even a year ago, when companies were
still wooing prospective employees with lavish corporate largesse including
stock options and other freebies, is becoming de rigueur across corporations
in America. A year of layoffs, slowdown and downturn later, corporate
survivors (just like those laid-off), are wondering what hit them. Just as
they thought the worst was behind them, companies are bracing themselves for
a protracted round of cutbacks in spending. The reduction in corporate
spending is in all functional areas, not sparing software and IT spending.
After
watching companies slowly bleed during the downturn, corporate management
gurus in business schools across America are starting to publish lists of
“areas” where companies could cut expenses with the least impact. For
instance, Rosabeth Moss Kanter, the renowned Harvard Business School
professor and strategist, has assembled a checklist of cost saving measures,
which include:
- Speeding
collection and slowing payments.
- Slashing
travel and entertainment budgets.
- Charging
for things that were once free.
-
Renegotiating purchase contracts.
- Putting
selected R&D, technology or capital spending projects into hibernation
till spring.
- Cutting
people, especially outside core areas of direct production and sales.
Similar lists
abound; and implementation of cost cutting is already taking place across
companies in the US. Employees working for corporate America, even in the IT
sector, are taking this cost cutting trend in their stride. They are
realising that the measures are intended towards aligning companies towards
long-term growth, and such cost cutting will enable the companies to emerge
stronger. The last point about cutting people outside core areas translates
to opportunities for outsourcers who can leverage their specialised skills
to perform tasks (like IT maintenance) that is not core to the operations of
traditional companies.
Cost cutting
by corporate America is akin to that being adopted by individuals and
families across the country. When things were booming, individuals did not
balk at taking on more and more credit card debts, second mortgages and car
loans. However, looking at the slowdown around them, families and
individuals are tightening their belts. They are realising that small
measures like getting rid of the second phone-line or repaying the credit
card loan using slush funds will go a long way in saving dollars over the
long-term. Interestingly, companies, which are also headed by individuals,
tend to think of corporate affairs like they would think of their individual
finances. This is an overly simplistic way of looking at corporate finances,
but the thought process is similar.
From what I
am reading in the press, even Indian IT is not too far behind in its quest
to cut costs. In a sign of the times, an Indian software leader reportedly
has nearly 25 percent of its workforce on the bench, and is already
rescinding offers it made to fresh graduates during campus interviews last
year. For a large company to rescind offers to people selected after a
rigorous process says something. This is a far cry from the time a few years
ago when eager companies would flock to campuses and training institutes
around the country. Of course, this transformation, along with the shift
towards outsourcing, also means that the Indian IT is maturing and
transforming itself to handle value-added work for clients instead of merely
shopping bodies.
Interestingly, there is a lot of hype in the media about Indian IT giants
also bagging huge outsourcing deals (like the multi-million dollar deal
inked by TCS recently). This trend towards outsourcing to India is nothing
new but is perhaps getting a fresh impetus from corporate titans in the US
who are realising that the cost and efficiencies provided by their foreign
partners really make it worthwhile to ship routine IT work to India.
The cost
cutting trend coupled with the renewed interest in outsourcing bodies well
for the Indian IT industry which has the perfect excuse to jump in and take
on high value work, thus moving up the value chain. As I mentioned earlier,
companies are being advised to cut costs outside their core area of
operations. This translates to an excellent opportunity for outsourcing, a
win-win proposition for the outsourcer and the company the work is being
outsourced to.
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