Her Majesty’s Revenue, Customs & Excise managing to 'lose' the records of 25 million taxpayers has to be a record for 'customer' disservice. But is it a once-off or was the government just unfortunate in being the first high-profile manifestation of the consequences of over-zealous cost-cutting?
All cost-cutting entails a risk that, if too deep, the cuts will adversely affect the organisation’s capabilities and hence its performance. The risk is greatest when it comes to reducing people numbers, when all-too-often – the danger of losing unique elements of knowledge is not fully appreciated or understood. For this reason, cost cutting should never be undertaken for its own sake, but should rather be the inevitable consequence of improved performance that results from continuous improvement initiatives. Some might argue that this is always the case, but I know from personal experience that just isn’t true.
The fact is that the increasingly competitive market has turned cost-cutting into an inverted arm’s race, where cost reduction has become a treadmill for executives keen to show their management ‘fitness’. Unfortunately, this mindset has important side-effects on the people who work in the organisation, often with unforeseen and unintended consequences.
Invariably cost cutting initiatives entail some job losses, and, even if these are delivered through 'natural attrition' rather than enforced redundancies, the prevailing culture becomes one of fear. Steve Jobs said, “The only way to do great work is to love what you do” and it isn’t possible to love what you do if you are fearful. You cannot be happy in your work if you are afraid, and if you cannot be happy in your work, you cannot love it.
Consequently, in such an environment people either become reluctant to show initiative, or else try too hard to prove themselves. If the former, they will not move out of their comfort zone or do anything they have not been trained to do or that is not in their 'job description' – something that is increasingly likely if the people who did it previously are no longer around. If the latter, they may well attempt something that they shouldn’t. So the risks of omission and commission, which could have a serious impact on the long-term sustainability of the organisation, both increase.
In such an environment it is highly likely, almost inevitable, that someone, at some stage, will fall into such a trap and the organisation pay the price accordingly. To date, however, the instances where this has happened appear few and far between, and the consequences have not been particularly calamitous. Whether this is due to an ability to disguise the cause, or through good fortune or effective risk management is an open question.
This cost-cutting mindset, however, has clearly, perhaps inevitably, also spread to the public sector. Unfortunately, the civil service is not a pressured environment, or, as this instance clearly shows, one in which risk management flourishes and, as a result, the risks here are even greater and the consequences more extreme.
Yet, it does not matter whether the organisation is in the private or public sector, the consequences for the people are equally devastating. There is an immediate outcry, derision for the organisation involved, the stigma of association, a climate of suspicion and a witch-hunt for the people responsible. All this makes it an even less pleasant place in which to work and compounds the problem, and increases the risk.
Not only is cost-cutting strategy very much a relic of the 'command-and-control' management era, but clearly one any executive team should approach with extreme caution.