Page 122 - Accelerating out of the Great Recession

DEFENSE FIRST

fell 24 percent in a single year, with profits down 70 percent.
Yet, in that same year, Nitto Denko, the fifth-largest player in
the industry, reported revenues and profits down only 3 and 45
percent, respectively. Key to mitigating the impact of the down-
turn was Nitto Denko’s rapid implementation of cost-reduction
initiatives, which were completed in six months. Some savings
came from quick wins in such areas as warehouse space leasing,
but much of the savings came from a deeper restructuring,
shifting the company to organizing around profit centers and
projects. Within two years of its restructuring, Nitto Denko’s
EBIT margin more than doubled, far exceeding the perform-
ance of its competitors.
Making decisions to reduce costs for the long term is critical
for protecting business fundamentals. But at the same time, these
cost cuts must be done in a way that protects the core. Empirical
evidence shows that companies that cut costs late in the day have
a tendency to overreact—not merely cutting the flab but also cut-
ting deep into core operations. Previous downturns are littered
with examples of significant labor retrenchment made deeper by
late starts—and this recession has been no different, as evidenced
by the soaring unemployment figures. Given that such broad-
brush approaches can compromise the core of a business, it is
instructive to look at alternative approaches.
In the Great Recession, some companies have gone about
labor force reduction in far more subtle, well-thought-out ways.
These companies have opted to reduce pay or hours, give
employees a retainer while they are on furlough, or move skilled
employees to lower-skilled jobs in order to retain talent. Such
refined strategies were not commonplace during the Great
Depression. However, even back then, GE and IBM stand out
as examples of companies that took a different approach.

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