Term Paper: Cost Cutting

Pages: 18 (4991 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper

¶ … Cutting

Faced with the different challenges in the business world today, many businesses resort to cost cutting as among the most popular solutions to problems that causes business' financial declines and failures. Cost cutting, a term used in the process of cutting back expenses in an aim to save assets, particularly money, is intended to help in picking up or catching up from the economic losses that an organization had experienced. According to Derek F. Martin, in his article Cutting Costs Without Losing Your Shirt,

Downturn, economic slump, or recession, whatever you call it the U.S. economy has seen a significant reduction of non-critical purchases across almost every sector.

There are many ways in which cost cutting is implemented by businesses. Most of which are perceived as strategies in countering economic pressures and challenges. Cost cutting is always seen as a means of reducing expenses and focusing on the maintenance of necessities, particularly assets, for future use. In cost cutting, it is the end result of saving finances that is most of the time seen by organizations, believing that whatever they save add up to the assets of the company. However, in many cases, one question always arises when cost reduction is implemented within a business organization. That is, whether cost cutting is really effective or not.

A number of researches and studies, focusing on the effects of cost cutting, reveal that cost cutting jeopardizes a business more than saving it from the financial and economic problems that an organization currently experiences. Oftentimes, the results of cost cutting are sarcastically referred to as "the cost of cost cutting" where the solution that is meant to cut expenses unfortunately brought more problems and costly expenses, if not more losses, to companies and organizations. In his article "The Cost of Cutting Cost," John Eckhouse (2002) indicates the following as a result of a survey studying the effects of cost cutting. Eckhouse reveals that,

An unyielding 11% insisted most of the cutting was flat wrong. That raises the question about the true value of the ax-wielding that goes on today. Are you delicately pruning pockets of fat or slicing into your company's flesh, potentially damaging a core competency?"

There are many strategies found by many organizations during implementation of cost cutting. Apparent to employees though, based from surveys conducted in some organizations, the strategies used by the company's management are not efficient. In that, cost cutting oftentimes serves as burdens to employees whereby they are negatively implicated by the different areas of cost reduction. Moreover, it is not only the employees who are seeing the negative effects of ineffective cost cuttings but the customers and clients of organizations as well.

While there are also indications of several benefits derived from cost cutting, issues on its general effects to organizations remain a subject that requires thorough analysis and study. Is cost cutting really cutting costs? This is the foremost question that companies and organizations that are implementing, or are planning to implement, cost cutting must carefully study. Otherwise, the term "cost cutting" may be equivalent to doubling the costs, as how some failed cost cuttings have caused.

Businesses and organizations use cost cutting because of several reasons, most of which relate to low economic or financial conditions. The prominence of cost cutting is seen within any type of industry, in that whenever there is a business slump or economic downturn, cost cutting is almost always one of the "catching up" strategies that many businesses consider. Cost cutting, as believed by some organizations, reduces expenses and saves business assets. Perhaps, this became a common belief because of the facade that cost cutting poses. That is, to merely cut or lessen expenses.

However, as with any other strategies relating to business managements, procedures, and strategies, it is never unavoidable that issues arise concerning effectiveness and usefulness. After all, a business is technically all about the right ways and workarounds on doing things to achieve success. Otherwise, without critical analysis of business activities and strategies, or without the delivery of other business beliefs and philosophies, a business' status will remain as nothing but running in a stagnant or crawling condition. In view of this, it is important to study and analyze issues concerning the real effects of cost cutting, particularly the revelations of researches and studies that cost cutting doesn't really cut costs. Rather, cost cutting just adds up to the burden of the employers and employees.

From the problem of whether cost cutting is effective or not, there lies several other problems. One is whether businesses should consider or not consider cost cutting. The following sections of this research will aim to explore cost cutting and its effects to businesses and organizations.

Context of the Problem

The history of cost-cutting may have started centuries ago, yet may be unknown to business history because of the absence of the different management strategies that we've known today. Even based in our personal experiences, we also do some cost-cuttings whenever there is a need to save for our future needs. But, if cost-cutting is a successful strategy when it comes to our personal needs, its relevance and complexity is different when it comes to implementing cost cutting in a business.

Almost every business has its own history of cost cutting. Cost cutting happens during times of financial crisis, having the need to tighten expenditures and the need to conserve and save. However, it is but normal that employees wonder whether cost cutting does something good to an organization. Such doubt occurs because of the fact that if there are people who know more about the impact and effect of cost cutting, it would be the employees who see almost everything that are implicated by cost cutting. Moreover, it is the employees who are directly affected by cost cutting. Thus, the employees are the people who can accurately evaluate the effectiveness of cost cutting. According to the National Tertiary Education online, cost cutting bullies employees.

NTEU notes that, in recent years, workplaces have been under increased pressure due to the effects of economic rationalism. Workplaces have had to cope with sometimes harsh cost-cutting and more and more employees are held to account for each dollar spent. In this economic climate, the phenomenon of workplace bullying can be seen as the result of work pressure boiling to the surface.

Cost cutting has been an issue in terms of business management strategies because of the lack of positive results that it proves to employees. To employers, the negative outcomes may be visible but were made invisible to the employees. Hence, in view of this, it is important that researches and studies that analyze the effects of cost cutting be conducted for the benefit of many businesses as well as for the benefit of the workforce. This will be significant as issues regarding the drawbacks of cost cutting asserts that cost cutting negatively affect the employees more than how it brings positive outcomes that are expected from it.

Many businesses sometimes do not see the negative effects of cost cutting. Hence, up to these days when a wide array of products of technology exists to help man perform tasks in the most fastest, easiest, and convenient manner, supposed to provide companies and its management with better ideas that solve financial or economic problems, cost cutting is unfortunately still considered as among the solutions to economic slumps. More unfortunate is that cost cutting is wrongly implemented, hence the impact to a business, to the employees, and down to the line of the business clients and customers, serve as among the factors that cause businesses with more financial failures instead of achieving the goal of saving from crisis.

Some employees believe that cost-cutting is a problem that is mistakenly considered by businesses as a solution. Because of this, cost cutting as a framework solution in uplifting from business crisis continues to be an issue. As indicated by Kaas and Ohl (2002),

In a new twist to best practice, several high-performing companies we studied are taking an unusually ambitious approach to reducing their operating costs.

Questions regarding the effectiveness of cost cutting present guidelines to researches and studies, particularly to the study of effective business management, in analyzing the reality of cost cutting as well as in investigating the possible solutions which businesses must consider other than cost cutting. Some of these Questions are as follows.

What are the effects and outcome of cost cutting? What are the risks and benefits?

Does cost cutting result more to positive end than to negative end?

How positive does cost cutting impact a business, its employees, and its customers and clients?

What are the costs of cost cutting?

From these sample questions, a study on cost cutting can give light to answers whether cost cutting is an ideal solution to financial crisis.

There are a number of alternative solutions, in fact should be considered as foremost solutions than cost cutting, that several researches and studies and even… [END OF PREVIEW]

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