Pruning: a priceless component of revenue growth.

• Author: Hall, Robert
• Position: MARKETING SOLUTIONS

"They'll cut more than 101,000 jobs this year."

--Businessweek's projection of 2011 job cuts by the top 50 banks

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 contrib-uted 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.

A lesson about pruning

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 yon want to have the largest and most glorious roses of the neighborhood, you will prune hard. This represents a policy of low tolerance arid tight control. You force the plant to make the maximum use of its available resources, by putting...