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What is Due Diligence and Why is it Important for HRM processes? We come across the term Due Diligence in many contexts as part of our everyday lives. Indeed, Due Diligence is used in a wide variety of contexts and fields including finance, legal, and commercial transactions. Often, we are also advised to do our […]
Time Management and Goal Setting for Work-Life Balance
Ideal Work-Life Balance involves an efficient management of professional commitments and responsibilities towards the family as well as society. In a 24/7 schedule of the day, one should ideally work for 8 hours and dedicate 8 hours each to sleep and recreation. But, hardly any of us live in this ideal scenario. Instead the millennial […]
What is Blind Hiring and How it Promotes Diversity and Inclusivity Efforts in Corporates
How a Typical Hiring Process Works and Why the Hidden Identity Markers Matter Typically, the hiring and recruitment process in corporates entails receiving resumes for the advertised openings, short listing some of them for the next round of tests and interviews, the actual interview process, and then, the decision to hire or reject. In this […]
Why Professionals and Students Must Invest in Specialized Skills
The Second Machine Age and its Implications for Manufacturing and Services Many Asian countries benefited from outsourcing of manufacturing and IT (Information Technology) services from the West. Prominent among these beneficiaries are China, which became the workshop of the world and India, which became the back office of the world. Indeed, this wave of outsourcing […]
Employer Branding and Talent Attraction in Open Talent Economy
First things first! Before we jump on to discuss how critical it is to attract and retain talent and how your employer brand is significantly connected with it, let’s understand the term ‘open talent economy’. Coined by Deloitte, open talent economy is a way to work or conduct business in a borderless and technology-enabled market. […]
Corporates need growth to sustain their activities and increase their profits. What is known in financial jargon as Top Line Growth is the increase in revenues that happens because of growth that the corporate actualizes during a given year.
In contrast, what is known as Bottom Line Growth is the net result of revenues minus costs of doing business and taxes paid apart from other items in the income statement that result from an outflow of funds.
In other words, a corporate is profitable when its bottom line is positive meaning that the difference between revenues or the inflows and the expenditure or the outflows is positive. This is the cardinal rule under which any corporate functions and usually, most corporates increase their bottom line through increased revenues and cutting costs that result in more top line growth (increased revenues) and better bottom line growth(as a result of increased top line and decreased expenditure).
During recessionary times (like the one that is now underway in the world, corporates find it difficult to grow their top lines because of sluggish demand, consumer purchases and spending decreasing because of lesser disposable incomes, and an overall bearish sentiment that results in lesser revenues.
In this scenario, corporates usually focus on cutting costs as a means to sustain their bottom line growth. Remember that the bottom line can grow even in the absence of more profits by cutting costs and rationalizing expenditures which reflect in the income statement as decreased expenses and hence, additions to the bottom line.
This brings us to the strategies that corporates pursue during recessionary times to increase their bottom lines. These strategies usually entail cutting costs wherever and however possible.
As salaries and benefits given to employees are a major source of expenditure to corporates, layoffs are the typical reactions to recessions. Apart from layoffs, the other strategy that the corporates pursue is through rationalizing the costs, which means that no salary hikes, no bonuses, and a trimming of employee benefits. These are typical reactions to a no growth or a slow growth external environment.
Further, many corporates cut down on costs by focusing their energies on critical and performing operations and activities. This usually results in shuttering of loss making business units and phasing out of activities where the costs are high and the revenues are less.
Moreover, corporates also resort to increasing profitability that can actualize by increased profitability, greater returns on existing processes through efficiency, and a focus on getting more bang for the buck, which means that corporates employ strategies that are intended to extract more revenues from the operations and reduce costs from the same.
Increased productivity is usually actualized through innovation, automation, and increased demands on employees to spend their time productively.
Among the three methods:
It needs to be mentioned that among these strategies, the best companies usually combine elements from all the three to actualize more profitability.
We have discussed how corporates react to decreased revenues by cutting costs. The key aspect about these strategies is that they all focus on cutting slack or trimming the costs.
An example would be an overweight person who has to be fit if he or she has to remain in contention for work and healthy living. This means that this individual has to cut the extra fat and generally lead a healthier life by cutting down on excess consumption.
Similarly, the bottom line for corporates to better their bottom lines is through trimming the flab and increasing the fitness of the organization.
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