When we are faced with financial constraints, where do we cut spending? Do we cut budget from things that are very important for our survival and wellbeing? Most likely, we target expenditure towards luxurious stuffs.  The reason is simple. These things may not have much contribution to sustain us while we pass through the financial downturn. During this season of our life, we hibernate until the bad season passes. 

The same is true when it comes to organizations. During times of financial predicament, many organizations enter into survival mood. Understandably, they attempt to remain profitable and wither the crisis by improving efficiency and cutting expenses. The question is where do they cut costs first? Do they cut from those luxury expenses or from critical programs that secure the long term survival and progress of their organizations? Or they just engage in blind cost-cutting. In the latter case, one may wonder whether such organizations- without some of those critical program that fallen victim of cost cutting- could come out alive when the economy picks up and continue to compete. 

Unfortunately, organizations are making across the board cost cutting without serious debates and following appropriate analyses. The data show that organizations are laying-off their workforce and cutting costs as means to survive the current financial peril. Colombia School of Business professor Rita McGrath suspects that there is a kind of “mindless cost-cutting is going on all over the place right now” which rarely brings successful outcomes[i]. It is understandable that organizations should find ways to increase efficiency and remain profitable to survive and cutting costs may be one of the strategies. However, should this cost slashing be made across the board and without adequate analyses? 

According to McGrath, the core strategic activities should be well executed “…while those things that are less central are eliminated altogether”[ii]. The question is whether learning programs are considered as one of the core strategic activities of an organization and get spared from being prey of mindless cost-cutting that has been going on since this crisis began. Regrettably, many organizations don’t view learning programs as their core strategic activities. Newton noted, “…when it comes to identifying budget cuts or reductions, training and its associated activities are also among the first victims as organizations struggle to identify ways to save money immediately, not in the long term”[iii].  

For that matter, many organizations may not spend much time to prioritize cost cutting areas. They make quick decisions to trim learning programs’ budget by depending too much on conventional wisdom. This wisdom equally affects individuals who may avoid investing towards self-development efforts like buying books and subscribing for trainings and so on. It may look straight forward first to slash budgets en route for programs and efforts which don’t bring profit.  

Nevertheless, conventional wisdom is not so wise in this case because it forsakes long-term competitiveness for the sake of short-lived financial savings[iv]. Bell once wondered why learning programs such as mentoring, which appears to be vital to success among the CEO’s couldn’t be rescued in rough economic times[v].  He asked this question during his first job as training director for a major bank. He was forced to scale down his mentoring program within a major division when a hint of impending recession came. Bell’s question is very important right now while many organizations are facing global financial meltdown and wide spread cost-cutting has been practiced widely and affecting learning programs. 

Expertus conducted a survey in November 2008 completed by 84 corporate and government training professionals in organizations of various sizes from 19 industries[vi]. The result showed that over twice as many respondents expected budget decreases for training in 2009. Likewise, according to a soon-to-be-released study from the American Society for Training & Development (ASTD) and i4cp, over twice as many respondents expected budget decreases for training in 2009[vii]. This survey reveals that organizations are seriously slicing resources used to support learning. Nearly seven out of ten respondents reasoned that their organizations are closely watching at their learning budget in this difficult economic time. This practice is not isolated to business and charity organizations. Government is also trimming its budget for learning programs. For instance, Mentoring.org reported in its web site that “the President's proposed budget for FY2009 would cut mentoring funding in half”[viii].  

This strategy of saving money to survive may work in short-term but in the expense of long term competitiveness via improving the growth of employees. The retired Chairman of Intel Craig Barrett said, “You can't save your way out of a recession, you can only invest your way out”[ix]. Besides, unless organizations continue expanding the existing overall skills of employees through learning, they couldn’t continue to compete once the economy picks up[x].  

The other challenge is that organizations don’t spend much time and energy to make wise, far-sighted, and long-term decisions while they are striving to survive by cutting-costs. It may seem easy on the surface for a CEO or CFO to make decision and cut learning expenses[xi]. However, they will find out that it is typically not the answer to surviving in tough economy if they mine deeper. The research from Expertus revealed that organizations use mere cost and volume metrics to influence budget or other important decisions than using business impact or return-on-investment metrics[xii]. Johnson also argues that though organizations are cutting training related expenditures first when time gets tough, there is no objective measure that calculates the business case of return on investment[xiii].  

In conclusion, we have seen that organizations don’t take adequate time to make sound decisions when they are faced with financial constraints. They simply carryout unwarranted cost-cutting measures that may affect the long-term development and performance of their employees. Moreover, organizations don’t adopt comprehensive metrics and objective appraisals before they make decisions like cost-cutting against their learning programs.  

The following are some tips that might help organizations make sound decision concerning their learning programs during seasons of economic crisis. They should make comprehensive analyses before they make decision to cut learning program costs. If cutting-cost from this sector is imminent, they should target those programs that are subcontracted to third parties. Besides, they should consider maximizing the use of their internal resources at hand than totally abandoning these programs until the economic situation improves.  

Though the major players in cost-cutting are the top leaders, there are also parts learning professionals should play to mitigate the challenge of scare resources. They should consider the advice of Tamar Elkeles- VP of Learning at i4cp, who said that those who are responsible for employing development programs should demonstrate conservative fiscal responsibility[xiv]. They should also rethink and reprioritize how best they can deliver learning considering the tight financial realities facing their organizations.

 Endnotes

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[i] McGrath, R. (2009). A Better Way to Cut Costs. Harvard Business Review. Retrieved on November 21, 2009, from http://blogs.harvardbusiness.org/hbr/mcgrath/2009/03/a-better-way-to-cut-costs.html?cm_mmc=npv-_-MANAGEMENT_TIP-_-APRIL_2009-_-MTOD0410 

[ii] McGrath (2009).

 [iii] Newton, R. (2002). Mentoring is “a tool whose time has come”. Human Resource Management International Digest, 10(4), pp. 31-32.

 [iv] Oakes, K. and Grohs, M. (2009). Cutting That Training Budget Is a No-Brainer, Right? Retrieved on November 20, 2009, from http://www.i4cp.com/trendwatchers/2009/02/13/cutting-that-training-budget-is-a-no-brainer-right

 [v] Bell, C. R. (2002). Managers as mentors: Building partnerships for learning. New York: Berrett-Koehler.

[vi] Expertus.com (December, 2008). Expertus and Training Industry, Inc.’s Survey Results Reflect Reactions to Tightening Economy. Retrieved on November 20, 2009, from http://www.expertus.com/news/press/2008/Expertus-and-Training-Industry-Inc%E2%80%99s-Survey-Results-Reflect-Reactions-Tightening-Eco

 [vii]  Oakes and Grohs (2009).

 [viii] Mentoring.org, (2009). Your Help Needed: President's Budget Cuts Mentoring Funding in Half. Retrieved on November 22, 2009, from http://www.mentoring.org/news/20/

 [ix] Schlender, B. (2009). Craig Barrett's exit interview. Retrieved on November 22, 2009, from http://money.cnn.com/2009/05/13/technology/schlender_barrett.fortune/index.htm?section=yahoo_buzz

 [x] Newton (2002).

 [xi] Oakes and Grohs (2009).

 [xii] Expertus.com (2008).

 [xiii] Johnson R. (2009). Training and the Cost Cutting Dilema during Tough Times. Retrieved on November 20, 2009, from http://www.hoteljobresource.com/trends-detail-sid-39213.html

 [xiv] Oakes and Grohs (2009).