Why Saving Won’t Save


“We’ve got to stop ordering roller ball pens. Just order those cheap Bics.”

That’s what one of my former bosses, years and years ago, pontificated as part of his cost-cutting plan to save the firm.

But cutting costs is no way to improve any business for other than the very short term. Instead, the key is to invest in your business in order to expand income.

There’s usually tremendous pressure on medical groups to increase current income, that is, to preserve distributions to the partners or shareholders. Too often, the average group president’s knee jerk reaction is to cut costs and to stop investing in the group’s future. After all, it’s current income, not the firm’s future, that’s being measured and, as you’ve all read in management books, what’s measured improves.

For a year or two, the leader is a hero. Distributions go up — the leader is a genius. Or, if distributions go down, the leader is lauded for having cut costs to at least preserve the current level of distributions. After all, if he hadn’t cut spending, the distributions would be even lower.

But within a few years, focusing on cuts instead of investment and growth results in rapid decline.

Oh, my old firm? Within less than a year, they closed up shop.

Leave a Reply