To CEOs Cutting Budgets: “Cheap is Expensive”

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What a dilemma!

You are asked to reduce budget, cut costs, reduce expenses. However, you need your BEST to gain market share, compete for customer dollars and emerge from the recession as a winner. You need the best employees, technology, service, partners, vendors, and agencies so you can outsmart and out-execute competition. You need the best to drive demand when marketing rules are being reinvented by customer conversations. You need the best because, more than ever before, the quality of your inside is visible to the outside, and that market is judging with their wallets.

You’ve been reading (perhaps experiencing) about recent company layoffs.  I’m guessing most companies are making lay off decision based on roles the business needs, but also employee performance.  It would seem obvious that every company wants to keep their best people. Although I’ve heard of companies that offer voluntary attrition with a healthy severance package. You know who takes that package? The best employees. What’s left at that company? Well…fewer of those best employees. Again, the quality of your inside is visible to your outside. The quality of a company is a function of the quality of people it keeps.

At Bazaarvoice, we go to great lengths to hire the best employees, and it has made a significant difference to our performance, which is a function of the performance we deliver for our clients. But imagine if we didn’t hire the best. Imagine if we hired the cheapest  employees, or had no discipline in our hiring process. We’d probably get those desperate for a job. They could be half as good in execution, poor strategic skills, and lack integrity. What kind of company would we be? More importantly, how effective would we be for our clients? We’d be as effective as if they had hired those employees. We – and most of your marketing vendors/agencies — are an extension of our client’s team. I don’t see much difference in the quality of results a client gets from a top performing agency or vendor and top performing employee.

I was talking to an executive from P&G the other night about agencies. Many times, as an agency grows and becomes more ‘homogeneous’ the best designers no longer want to work there. The best designers want to work where they can do great work. Where it is demanded they do great work. But there’s a natural ‘circle of life’ for companies who fail to focus on being the best. Companies that find themselves in the dangerous ‘middle’ of a market spiral down in performance, and eventually fail to make room for those that do great work. For the sake of your company, the worst thing is to travel down the middle to mediocrity in tough times. It’s like multiplying bad times bad. I’m not a math genius, but that equals “suck”.

My frugal friends at Ice.com (run by the Gniwisch brothers) told me their wise mother’s saying: “Cheap is expensive”.  Though I didn’t ask Mrs. Gniwish, I think it means if you buy a cheap product/service, you pay for it in many other ways. You could pay for it in having to do things yourself, rework projects, or lack results from mediocrity. “You get what you pay for” was not invented by the Gniwisch family, but I think it’s just as salient in this argument.

I saw the perils of commoditizing capabilities myself in launching over 100 features & functionalities on Dell.com. Many times, because we time boxed our development, we had to cut important features or design elements from a project.  While we may have technically launched the project, we didn’t really achieve the full vision or ROI from the project. For example, when we launched the couponing capability – though it ‘launched’ – it lacked important business process capabilities. As a result, the functionality didn’t get used for months until we could phase in the lost features. We knew what performance we needed from a functionality, but didn’t get it because we afforded (time box) lesser capabilities. The answer should be to build the best of the highest impacting functionalities, and drop other projects.

Similarly, in times like this, the opportunity is to focus the organization on the most important things. And those important things should have high performance characteristics. This doesn’t mean to get the ‘luxury’ equivalent of people and partners, but rather the ‘value’ of high performance. Get the best performing people and agencies on the strategies that are most critical to your current and future performance. Think about prioritizing initiatives that have the highest net present value, where benefits scale and the evolution of a program grows annuity of benefits throughout the organization. If you commoditize or cut anything, it is those things that are furthest away from customer-facing and culture-impacting. At a time of high customer distrust and considered purchase decisions, now is the time to double down on investments customer centricity and word of mouth. Operationalize the voice of the customer, bringing ‘customer oxygen’ throughout the functions. Keep or build programs that automate and scale to maximize return and leverage precious, high-performing employees’ time. 

Don’t multiply bad times bad performance. No one wants to suck. The final analysis of your performance is whether you were the best you could be in the worst of times.

8 Responses

  1. Don’t be a commodity to a company. Be an entrepreneur!
    I’d hate to get sized up by someone else on my performance and slashed when I could be putting in that same effort to get my own company where I want it to go!

  2. YES! Now is the time to increase your market share. Beg, borrow and steal to keep your marketing campaigns going. What is your competition doing? If they are cutting back, this is a perfect opportunity to take up their slack and add to your customer base. It’ll be a stretch, but what a great time to build a foundation for the future.

  3. Paul says:

    I think your points are well taken. I am also reminded during these lean times that preparation is done in the fat times. Companies need the discipline to watch expenses, demand excellence, and not over-extend (read: leverage) their liquid assets. It’s a hard thing to do – but great companies excel at it.

  4. Sam,
    You’ve hit the nail on the head with this one. We’ve been programmed to care so much about what ‘other’ people think that when the media says jump WE DO.
    There’s no denying these are very rough times. But too often our ability to keep perspective gets lost – our vision and focus clouded by all the noise and chatter of over-exaggerated concerns and what-ifs.
    The CEO of a large B2B tech company I know in Asia faces this on a daily basis. It’s not that the markets our down and sales have dipped that is of concern – it’s the uncertainty – not knowing where this road is going. When it will end and what things will look like when it does.
    As marketers it’s easy for many of us to emphatically push and say ‘this is the time’ take over more market share – keep spending on marketing. But we’d be wrong to end in such generalities.
    Continue marketing, hiring the best, evolving and continually improving during tough times? Definitely. But it must be done with very specific goals and targets that are measurable. And that’s why your point on ROI is so key.
    The silver lining to tough times is that it forces those that usually wiggle with vagueness to straighten up take notice and re-adjust their aim to hit targets with laser like precision. This isn’t a time to stop improving – rather the time to push for more improvement than before, greater efficiency and higher response.
    At least that’s what my own internal media tells me. Enough of a rant from me I suppose.
    Cheers,
    -Mike

  5. sara says:

    Being an entrepreneur is just what i was thinking Jim. Right now we need to be innovative, think outside the box. Yes, it is very unfortuante what is happening in our economy right now, but it is time to step up to the plate.
    People are loosing their confidence, not just with their company but within themselves. They sit at their desks worrying “will i be next to go”. But we should not let this get to us.
    Be creative and use your marketing abilities to the highest capacity because the majority of competitors are playing it safe. I agree with Paul it is a stretch but we need to start thinking about the future, because thats all we have left!

  6. Brilliant. This post needed to be written. Glad you took it on. 🙂

  7. Jordan says:

    I like the post lots of good info and food for thought. All in all though I agree with what has been said.

  8. Clayton West says:

    I agree with your argument, when your competitors are cutting back it is a great opportunity to step forward.
    But many companies simply don’t have the money to spend, and when it comes to choosing between retaining employees, paying suppliers etc…or throwing a large percentage into a marketing budget which on paper looks to be non crucial to the business, its hard to talk to business leaders into spending money they don’t have.
    I think though that you are right in saying that every opportunity and initiative needs to be squeezed as hard as possible, and for business owners, preferably the cheaper alternatives.

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