The Era of Cutting Costs Is Over
Now corporations like Kraft Heinz and even public-sector employers face a choice: invest or die.
In the long run, it doesn’t pay to neglect the core of the business.
Photographer: Kevin Lorenzi/Bloomberg
Whether it's teacher salaries, physical retail stores or packaged goods companies, strategies based around cost-cutting are backfiring left and right. Last week, Kraft Heinz became the latest example, as its shares plunged following weak earnings and guidance.
Cost-cutting is an inevitable fact for most organizations, and it was a common theme in the U.S. over the past 15 years or so. A good starting point for this era might be the merger of Sears and Kmart in late 2004. At the time they were two cash-rich, profitable retailers that had grown stagnant compared with big box stores like Target and Walmart and the emerging e-commerce industry. The thinking was that by combining the struggling rivals, "inefficiencies" could be wrung out of the firms, freeing up cash to invest in growth or return capital to shareholders.