Corporate Retrenchment or Corporate Renewal?
by Tom FitzGerald

The bottom lines may be the same, at least at first. But there is a profound difference in the long-term profitability and competitiveness of companies that renew, regenerate rather than just retrench ...

The economy is in a slump. Corporate America's profits are plunging for the first time in decades. The longest, most sustained economic growth in living memory is now over. Many hope for an upswing soon but just as many fear full recession or something worse. And business news is full of cutback talk and layoffs.

And the economy and the markets, the analysts, the investors and the boards are saying to CEOs: "Do something! Do something now!"

Retrenchment, cost cutting is in the air, and in truth bringing costs in line with revenues is seldom wrong. What is more, in many companies, during the long upwelling of business, costs grew unquestioned, with many unnecessary costs hidden by the flow of revenues.

So it is time, full time, for managers to act or at the very least react.

But there are two major ways for managing officers to respond to downturn: one is to retrench, cut costs, pull back; the other is to renew, revitalize, grow stronger. (There is of course a third: do nothing and hope for the best - but let's not deal with that here.) And this choice is always available.

Strangely both responses look the same on the bottom line, at least at first; they both reduce costs. But they have a profoundly different effect on the long term profitability, competitiveness and potency (yes, potency!) of the company.

Retrenchment, even when it is done superbly, merely leaves the company unimpaired. But retrenchment is rarely done that well. And done less than perfectly it produces a weaker, frightened organization that has lost muscle, market, bone and spirit. Business literature and oral histories are full of ugly examples.

Renewal, though, that's different. Though it always results in reduced costs, at least as great as a 'cut-back' would achieve, its effects are positive: Leanness, agility, assertiveness, morale, strength, vigor are the terms that are used by those who experience it; not smallness, slowness, timidity or weakness, the connotations of retrenchment.

So, why do many choose retrenchment only, not renewal?

Many truly have not heard of Corporate Renewal. Many think it something only charismatic leaders can achieve. Others do not know how, for it appears rarely on b-school syllabi.

Some too are embarrassed, because the language of corporate renewal and regeneration is often thought of as unbefitting to business; as if leadership and management were robotic exercises of intellect and not the mobilization of human heart and hope and will and vision. (How and when did business get the reputation of being a cerebral process?)

And also, in these past years of plenty, many managers were appointed without ever having to experience the pinch of famine and without learning that it is possible to strengthen organizations in the face of diminished opportunities. And that the very need for retrenchment brings with it the opportunity to renew.

So is renewal difficult?

Strangely, corporate renewal is easier and often quicker than retrenchment and, stranger still, costs less, always less. And strangest of all, it is most easily done when financial crisis or the economy can be cited as the reason. Renewal is in fact an innate and instinctive response of any organization to attack or adversity, but only when the challenge is accepted by its leader.

So what should be done?

* If business conditions and good common sense say cut costs, then do so. But do it through renewal not retrenchment.
* If cutbacks have already happened and were done well, corporate renewal will provide more, still more.
* If cutbacks were done badly, then renewal is essential - if only to repair the damage.
* If cutbacks have yet to happen, then the golden opportunity to renew and regenerate is there to take.

And how should that be done?

* First the manager must throw down the gauntlet to his team and to his people, demanding a reinvigorated, leaner, more aggressive company, one altogether fitter and more dynamic than it now is. And give them hope.
* Then his team must take the challenge and respond. Not just logically, in the intellect, but also viscerally, in the belly. Mobilizing the emotional drives of the company, mustering its willingness to confront the challenges - and not just those of the economy but those of its soul, which are its real challenges. Evoking its willingness to sacrifice and collaborate and create. And finally declaring war upon the enemies of its survival.

That is renewal.

And renewal always gives a stronger company, aggressive, motivated and mobilized to command its future. And a surge in profits. And renewal always gives a leaner company, cuts its fat; with the assets that are realized invested in its future - or, in times like these, sent to its bottom line, for that ensures its future.

And is there a step-by-step process a CEO can undertake?

Yes there is and well established too. It has been proven in the spirit and on the bottom lines of companies you know. And it can be used by any manager.

All that is needed is the courage to confront the real issues of the organization and call upon the drive and commitment of its people. The process does the rest.


Tom FitzGerald is a bottom-line oriented, consulting management engineer, who specializes in effecting major improvements in profitability, performance and growth. He has worked with CEOs and COOs of more than 200 organizations in the US, Canada and Europe, ranging in size from start-up to Fortune Five Hundred. By education, a physicist. By birth, Irish. By instinct and experience, a business catalyst. He has been president of FitzGerald Associates since 1976.

FitzGerald Associates specializes in Profit & Performance Improvement, Corporate Renewal, Preemptive Turnaround, Assessment and CEO Coaching. For information on Key Note Presentations call 847-599-9960, fax 253-323-3387 or e-mail fitz@ManagementConsultants.com . Information on the corporate renewal/turnaround process is available at www.ManagementConsultants.com . Please feel free to visit.

N.B. FitzGerald Associates were selected "Best in Class for Corporate Turnaround, Renewal" by the editors of The CEO Refresher. (ed.)

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