Cut Costs Not Corners

Cutting Costs – How Google Did It

In 2009, while other technology firms struggled financially, Google’s earnings increased by 19%. What accounted for this sharp rise? While sales revenue grew by 3%, Google derived the majority of its improved results from stringent cost-cutting measures. For example, Google’s food service unit reduced its hours, and the company dissuaded employees from taking home the free meals they received at work. Google also disposed of bottled water, afternoon tea and various other employee perks. In total, the firm effectively cut capital expenditures by 80%. Google effectively disproved two myths surrounding cost cutting:

• “Cost cutting is for times of crisis only” – False. Cost cutting should be “a permanent management process.” Often, once an emergency has passed, companies revert back to their free-spending ways. For example, companies typically pay too much for acquisitions in rising markets. In “the biggest, and certainly the worst, banking takeover in history,” Royal Bank of Scotland (RBS) led a consortium in July 2007 to acquire ABN AMRO, a Dutch bank, for approximately €70 billion [$97 billion] – a massive €9 billion...