My background is in the field of operations and engineering. So this is taken directly from my experience, however I am sure it can apply to all areas.
In operations, when things start to go bad, the temptation is there to just cut jobs, cut costs and cut, cut, cut! In fact we have seen Rio Tinto cut 14,000, (other examples here)
Then what happens?
There are not enough people to do the work. Things start to fail; machines start to have a lot of downtime and people who can leave will leave.
Everything starts to focus on the urgent tasks of the moment instead of the important tasks and suddenly we are fighting a losing battle. We deal with the urgent stuff, leaving the important stuff until it becomes urgent, then we deal with it and the cycle continues.
Our software support department turns into the crisis management department. Instead of dealing with the important stuff now, and everything is important in the support role, we are dealing with the urgent stuff we didn't deal with yesterday.
We got rid of our call centers to save cash and now our clients are sending us abusive emails because they are desperate to speak to a human being. (Actually, you are probably close to losing them now)
Or we cut resources to save money and we burnt out three of our best consultants doing so. (And the rest have to travel so much it won't be long before they leave too)
In my area of engineering this often means loss of revenue – but it can also lead to accidents, environmental disasters and fatalities. That tends to sharpen your focus a little bit.
The answer is simple. Don’t cut costs, cut waste and reduced costs will follow.
In fact the whole goal of efficiency is to be productive without waste.
Get rid of non value adding work. Get rid of things that we just do, activities that are just routine and do not add value. (I just cut the federal civil service budget by a third!)
Why are we wasting money with software licenses? OpenOffice.org will provide us with a pretty darn good office suite, for free. ProjectOffice.net will provide us with a pretty darn good online project planning tool for free. (and so will Basecamp.com)
Why are we still spending money for Webinars when DimDim.com can do this for free or very cheaply? Why are we spending money on telephones when Skype as been around for years now? (Or Gmail Video if you want)
In fact, why are we developing / implementing a costly ERP or CRM when the SaaS versions are good enough, cheap and the implementation is rapid?
More to the point. why are we trying to sell expensive ERP systems to clients in crisis when we could generate more service revenues with higher volumes by tying into one of the SaaS providers in the marketplace?
Bootstrapping is about to take on a whole new meaning in the Western World. One of survival. But do not just cut costs - the results can be anywhere between a net negative benefit or an absolute disaster.