Only those who will risk going too far can possibly find out how far one can go.
– T.S. Eliot

Applied to business, that translates to “You don’t know you’ve going too far until you’ve gone too far.”

Boards and stakeholders are often driven by profit – unfortunately, that isn’t always sustainable profit. Also unfortunately, that often means pushing the limits – until something breaks. It’s a fine line as recovering from that error can at times be more costly than heeding the warning signs and curtailing until it’s too late.

Back in 2000, I was part of a transition team as the bank I worked for was acquired by another bank. My role at the time was overseeing a team responsible for all technology vendor purchases and contracts. It was a relatively significant budget and mandate.

Whenever there is a corporate acquisition, the new owners look intensely for low hanging fruit revenue or cost savings. In this case new senior management thought it wise to go after all the major technology vendors and get them to renegotiate prices on already agreed upon contracts. After all, we were much bigger now and we deserved a better deal. There were literally millions of potential dollars on the table. On the surface this sounds like a good idea – after all, if we coud generate an immediate savings of several million dollars, why wouldn’t we do it. Board members even said things like ‘we have nothing to lose” and laughed about it. They were wrong and I let them know it.

Here’s what happened. As a gesture of good faith, many vendors capitulated and offered savings – probably to the tune of about $5million. The problem was that these vendors had essential products and the bank needed them. There were no real logical substitutions. Going forward and to this day, these large technology vendors “pad” their invoices as they know they need to leave a buffer for when the board decides once again to demand a discount. I’d estimate that the immediate savings was washed out in year two and that that savings actually materialized as a cost of $100 million over the next 10 years. It also meant that the negotiating team no longer had any power on pricing since the technology companies knew that the executive and the board were the real decision makers. It’s all smoke and mirrors and – the executives at the new bank “went too far”.

My initial objecting to the decision was a mistake. They were going to do it no matter what. A better approach would have been to simply outline the risks so they could fully understand their decision and potentially mitigate the long term cost of the short term decision.

In another role at a different company, I was responsible for building a new centralized client service unit to replace the current distributed one. The company had hired outside consultants to project savings and the Board bought in. The problem was that the consulting firm’s math was all wrong. They based staffing needs on a model that was filled with 25% temp workforce that didn’t get counted in the initial assumptions. It’s like this 25% of people didn’t exist. They therefore build in a team reduction from a starting point of 75% of the current team. It was an impossible task. They went too far. Add to that that there were expectations of providing additional services to another internal business and it was a clear formula for disaster. They couldn’t see past the wishful-thinking consultant’s report and mandated the cuts. Once again, the board went too far and I let them know that.

Yet another mistake. Boards and senior executives will make myopic decisions. My job was to do what I did and explain the failed logic but, if they still didn’t get it, my job was to support the effort and do the best I could to execute. If it failed at that point, the onus was no longer on me and my “attitude” would not have come into question.

The same holds true to many other cost cutting measures. Once every year or two, large companies decide to cut costs be reducing budgets and implementing things like hiring freezes or zero increase budgets or even zero based budgets. It’s a fact of life. As a department head, there is nothing you can do about it other than do your homework, outline the potential risks, then support the decisions, flawed as they may be.

The big problem with this is that there are real business risks if and when the cuts go too far. If staffing cuts go too far, there are customer attrition risks, labor movement risks, key employee attrition risks. Often, should these risks come to fruition it can take more time, energy and money to recover that was gained from the initial cut.

Here’s the rub… Your job is to educate senior management when these decisions are made but then, move on, support the decision and do everything you can to minimize any fallout. Your job is to find solutions – not problems.

It’s a tough pill to swallow but sometimes you need to let things go too far so people can experience going too far.