Thursday, June 5, 2008

Right-sizing

The Chicago Tribune is planning to cut back, reducing editorial content to 50% of the paper. Officials have found that there is "a significant discrepancy between the output of individual reporters," and that the productivity ("in terms of sheer output") is higher in their smaller papers than in the big ones.
The implication of that difference in output, as measured by story production is that "We can eliminate a fair amount of people, while eliminating not much copy."
United Airlines is giving up on fighting low-cost carriers by eliminating Ted Airlines, eventually dropping domestic capacity by 18%. They're following American Airlines, which announced a drop in capacity last month.
"At United, we continue to do the right work to reduce costs and increase revenue to respond to record fuel costs and the challenging economic environment."
One tenet of business I learned a long time ago is that you don't cut costs to gain success. The implication is that companies succeed by finding and producing things that people need, not by reducing the footprint.

But the Tribune and United have decided to go the other way, giving people less of what they want. When is the last time anyone complained that there is just too much news in the paper, or that an airline offers too many flights to a destination? The message to customers is, we're willing to give you less for more, and we'll just keep our fingers crossed that this will make us profitable again.

And there's a great danger that these companies will keep the wrong things. A chill goes through me when I read that productivity in the newspaper game is going to be measured in "story production."

I've seen this before, in the software industry, where periodically someone comes up with the bright idea of measuring "lines of code written" as a way of ascertaining individual productivity. That never works, because the goal should never be lines of code, but well-written code that fulfills a business function. Furthermore, when you're maintaining existing code, one goal should be to reduce the code base (that's the objective of refactoring).

I would rather read a newspaper story of four paragraphs that has some insight or conveys information than one of a full page that has no new content (I have made this letter longer than usual,
because I lack the time to make it short [Je n'ai fait celle-ci plus
longue parceque je n'ai pas eu le loisir de la faire plus
courte]~Blaise Pascal, Lettres Provinciales (1656-1657), no. 16, from here).

Similarly, I want to be able to take a plane where I want, when I want. Hey, I understand trade-offs, that I can't always get what I want, but it seems questionable to very publicly announce that you're going to do less of what you do.

Again, I understand the need to reassure investors, and know that a lot of this new smallness is about that. But it poses a great risk, convincing customers that quality won't suffer while you're telling stock analysts that it's all about "right-sizing." It could work out, but gathering less news to compete with an Internet that offers "more" is pretty counter-intuitive.

9 comments:

mcfnord said...

You bet you cut costs to gain success in business. It's about half of what you do. There are things great and venerable about the news reporter's task, but it still operates in a business context, and must adjust to changing market conditions. i find it most strange that you're concerned the paper's losing editorial content. WHO CARES? That is clearly something we can internet about reliably. internet is fundamentally an editing platform for anyone publishing anything.

Androcass said...

mcfnord: Thanks for your post. I'm not saying that good companies don't manage costs, but that they don't count on doing so as the reason for success. There's a lot more upside in growing revenues than there is in lowering costs.

The second part initially confused me, until I realized we have a definitional problem. For journalists, editorial content does not refer to opinion, but the actual stories (anything which falls under the purview of the editorial staff). Therefore, I am concerned about a loss of that, because that's the raw reporting which allows all of us to have opinions.

mcfnord said...

There's upside in growing revenues during expansion, but during contraction, the only upside is in lowering costs.

Androcass said...

True enough, except that contraction or expansion are relative to a given enterprise and its situation. If your strategy is to cut costs, then you're accepting that you will be contracting, which is inherently part of the message you're sending to stakeholders. Even in recessions and depressions, there are companies that grow, and they don't do that by cutting.

mcfnord said...

Frequently they do grow revenues by cutting costs, and a recession is a natural time to do that, because revenues will drop otherwise.

Androcass said...

Except that cutting costs does not in and of itself grow revenues, and a recession is an economy-wide phenomenon. As I said above, managing costs is intelligent, the gross cutting of costs often not. The available research indicates it's about 50-50 whether a company that focuses primarily on cost-cutting survives; all I'm really saying here is that revenues should always be the first priority.

Anonymous said...

cost savings is a new revenue source. my own business requires expansion, but after that, it requires optimization.

Androcass said...

It takes some pretty fancy accounting to move a reduction in cost to the other side of the income statement.

I'm not sure how you determine when your business moves from the expansion phase to the optimization phase. Even if you can, given changing conditions and uncertainty, I would contend that your attempts at optimizing will more often become satisficing, and that's not necessarily bad.

Anonymous said...

Expand, optimize, expand, optimize.

Cost reduction = keep more.

I'm at work. We just expanded. Next we'll optimize. Then they'll lay me off in October. Keep more!

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