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Article by Mohan Babu


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.




About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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