The Coronavirus Cost Pinch

As the outbreak spreads, some leaders are stuck with costs but no revenues. How firms can use “tactical takeouts,” to trim expenses.

Each year, organizations spend countless time planning out their annual budgets, estimating how much revenue they’ll have—and when they’ll receive it—and how much money to spend and when to spend it. The coronavirus has made much of that planning worthless.  

The outbreak has spread across the world, already cratering sales in some industries, and analysts believe the economic impact is not finished. Leaders are now looking to reign in costs, caught with bills to pay and no sales revenue to pay them with. “You have twelve months of expenses and only ten months of revenue,” says Nathan Blain, Korn Ferry’s global solution leader of organizational strategy.

Some leaders may be facing shortfalls so dire that they feel they have no choice but to lay workers off. But many organizations may be able to take other, far-less disruptive measures leaders  These short-term moves, called “tactical takeouts,” usually can reduce short-term expenses but not impact a company’s ability to sell their products and services. “You have to believe that the revenue is going to come back,” Blain says. 

One of these takeouts is cutting back employee travel and entertainment expenses, a move already being done by several major corporations around the world. Indeed, businesses spend more than $1.3 trillion a year on travel alone. These type of trims might be inconvenient but they also are something most employees understand. “The cutting of T&E is something that people feel is an expense that doesn’t threaten their jobs,” he says.

Firms can also consider changing the timing of product launches and other initiatives. Instead of putting new employees on the payroll in the first, or even second quarter, firms can move start dates to the third quarter. Product launches and marketing pushes can also be delayed; for instance, the release of the next James Bond movie, initially planned for April, has been pushed back several months. 

If communicated effectively, these types of moves, Blain says, usually won’t cause much grumbling from employees. “Tell employees that there are some non-headcount related moves that we are making to preserve some level of profitability during what could be a bad time,” he says.

Some firms, however, may use this time to do a more systematic review of costs, Blain says. Experts say many organizations have programs that could be trimmed without much impact on future business or employee engagement. Blain says that many firms, when they review their expenses, find that they are offering employee discount, insurance, and recognition programs that employees don’t actually use.