They’ll cut more than 101,000 jobs this year. – Businessweek’s projection of 2011 job cuts by the top 50 banks

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As we finalize our plans and budgets for 2012, one thing is clear: most businesses have lost the ability to grow and the national government has lost the ability to shrink. The talk of reduced government spending goes on endlessly while the U.S. deficit continues to spiral upward. In the private sector everyone talks about the imperative for revenue growth but in today’s economy, the recent round of cuts reflects an industry with heavy doubt. It all points to a central challenge for 2012: how to effectively grow revenue and prune costs.

One way to view job cuts is as the elimination of direct or indirect revenue sources where doubt exceeds confidence. In other words looking through the lens of revenue, we eliminate those resources where we conclude that the certainty of the cost outweighs the risk-adjusted potential of the revenue. However since we have no crystal ball, some of the costs we eliminate likely would have contributed to profitable revenue growth just as some probably would not. That is why these decisions of where to cut and where to invest resources are so difficult. We all know the heartburn of making cuts in marketing, distribution, product development or other areas thought to have real upside potential for longer term revenue growth.

A related symptom of our revenue struggle is the ample cash that sits on the balance sheets of many organizations. We have all heard about Apple with its horde of $76 billion exceeding the money the federal government has on hand. A struggling economy and uncertain business climate have contributed to a number of companies who fit the old adage, “They have more money than they know what to do with.” Idle cash and stock buy-backs reflect a business environment running long on capital and short on actionable plans for revenue growth.

Growth is a challenge rose gardeners know well. Tom Peters cites a description from Arie De Geus, the father of scenario planning at Royal Dutch Shell and author of The Living Company:

Rose gardeners face a choice every spring. The long-term fate of a rose garden depends on this decision. If you want to have the largest and most glorious roses of the neighborhood, you will prune hard. This represents a policy of low tolerance and tight control. You force the plant to make the maximum use of its available resources, by putting them into the rose’s ‘core business.’ Pruning hard is a dangerous policy in an unpredictable environment. Thus, if you are in a spot where you know nature may play tricks on you, you may opt for a policy of high tolerance. You will never have the biggest roses, but you have a much-enhanced chance of having roses every year.

Let me point to three key lessons regarding pruning. Effective pruning is first and foremost a growth-inducing activity — required for growing roses in gardens and revenue in organizations. While pruning is difficult and appears to be a negative action, it is really one of the most important revenue decisions we make. Pruning is about persistent removal of resources from decline andredirecting them to profitable growth. It is a step that follows careful and constant planting, cultivation, and feeding. When we think about budgets, staff or even jobs as entitlements deserved for past performance, we lose the forward-looking growth-inducing spirit of pruning. The key: build a culture that embraces constant pruning and reallocation as a tool for revenue enhancement.

Second, effective pruning protects from the pain of cutting. Pruning restores, cutting eliminates. Most often large layoffs are the default action because a company has failed in the task of on-going, organic pruning locally across the enterprise. As organizations get larger, it is easier for unproductive resources to hide. As a result organizations become fat and slothful. Eventually the cumulative effect of that is revenue loss. Atrophied into a weakened condition, they no longer have the luxury to prune; they are forced to slash in a way that impedes revenue growth. Often these decisions are made hastily, under pressure, top-down with little revenue focus. The task is to cut the organization down to its now revenue-starved size. Symptomatically it, looks like a cost issue, but it is really a revenue growth problem created by misallocation of resources.

Third, effective pruning grows jobs, people and a stable culture. Pruning rids organizations of unwieldy, unsustainable, and unproductive dead wood — hidden costs that if unmanaged kill jobs and eventually morale. Just as with excessive wages or other costs, failure to prune makes organizations uncompetitive. Then, when organizations cut to the bone, there is little left for high return investments in innovation. Pruning, like vaccinations, extract small amounts of short-term pain in order to keep organizations, their people and culture healthy in the longer-term. It is virtually impossible to create a stable workforce or culture in organizations that only know how to cut but not how to prune in a way that feeds growth.

That is why De Gues extols the virtue of longer-term stability over simply growing the best roses possible for this season. Pruning hard may produce prize-winners in the short-term but it puts the whole garden at risk longer-term. What if Apple had failed to invest Mac profits into the iPhone or iPad? Clearly not all innovations work out, but healthy organizations grow — new products, markets, segments — by proactively pruning the old and reinvesting it smartly in the new. Apple spends one fifth what Microsoft does on Research and Development and yet has overtaken them in market value. Why? It appears Apple has been especially insightful in targeting superior revenue enhancing resources.

Corporate and government leaders are still trying to learn what gardeners know: pruning is an essential component of growth. Trimming the cost is really hard, but reallocating resources to promote productive growth — priceless.

(Column appeared originally in ABA Bank Marketing magazine – October 2011)

By ROBERT E. HALL

Not to be reproduced without written permission. All rights reserved. © Copyright Robert E. Hall 2011