You have this bureaucracy, doesn’t matter but let’s say it’s a bank.
It’s making billions of dollars in profits, year in, year out.
Yet every year there are cuts. Cuts everywhere. “More, with less” Retrenchments. Outsourcing, offshoring.
Why? What drives this? The business is not in trouble. But sooner or later those cuts will get it in trouble. Key-man risks emerge. Knowledge is lost. Systems fail. Processes are forgotten.
Take offshoring. It doesn’t save money.
Trade one experienced onshore resource for one experienced offshore resource, and you save money.
Trade one experienced onshore resource for one inexperienced offshore resource. You may save money, but you get less (or even nothing) done.
Scale up, and trade a group of experienced onshore resources for a group of largely inexperienced offshore resources. You save money, but less done. So get some more (offshore) resources.
My perception is that by the time you’re paying ~90% of what you used to pay, you’re achieving ~20% of what you used to. One in four of the resources are okay, and value for money. The rest are “ballast”. And they all cost the same.
But I digress.
What happens is this. Your CEO says to his minions, “cut your budgets by 10%”. This will earn him brownie points with the board. Perhaps his bonus depends on it. He makes sure his minions’s bonuses depend on it. The CEO’s minions pass the pain down the line. Line managers have to cut their budget by 10%, no matter what, but still do the same job as before.
Of course they can’t. Not after the last few cuts eliminated any fat that may have been in the system. So what they do is produce less. A 10% budget cut is virtually guaranteed to produce >10% drop in productivity (given there’s no fat / waste left to cut).
That doesn’t matter, the key things is that (1) the budget cut is easily measured, and there’s no way round it (2) the output/productivity is often less easily measured, and there are many ways to juke the stats so as to make the output/productivity seem not as bad as it really is.
So at all levels from the executive down to the line management, everybody plays the same game:-
1) Cut the expenditure, or lose your job/promotion/bonus prospects.
2) Juke the stats to make it look (in the short term) like cutting the expenditure was no big deal.
Cut by cut, productivity falls – far faster than the budget has been cut, and faster with every subsequent cut.
This may indirectly put pressure on the budget next time round, leading to more cuts in a never ending vicious spiral.