The Executive Brief
Remember the good old days? Back when you were a VP, Director or even a Manager who had to implement some budget cuts? Sure, they make the cuts sucked, but you always had someone to complain to and to blame - the CTO.
Now as the CTO, it’s a bit different.
In this article we explore why budget cuts are a painful but very necessary tool in your arsenal. Yes, there are definite downsides to making budget cuts, but there are upsides as well. It’s a wise CTO that not only uses all of the tools at their disposal, but also knows the best way to deploy them.
So, get yourself an adult beverage (or whatever it is that will help you overcome the trauma of budget cuts past) and let’s dive right in.
Managing Through Budget Cuts
Most Product & Engineering leaders dislike budget cuts — after all, we’re not CFOs! :)
Budget reductions truly leave a bad taste in our mouths. But although most leaders don’t want to hear this, budget cuts are not all bad.
In fact, they can be a very healthy thing for a Product & Engineering organization.
Let’s review some of the downsides of budget cuts first and why we as leaders so greatly dislike them.
Downsides
There is a general perception that cutting budget equates to not growing although that’s actually not always true
If the budget cuts are severe enough and people have to be exited then that can be very difficult for all involved in a myriad of ways
CPTOs can take a credibility hit from their teams if they have to reduce their budget which reduces the resources available to the team
Budget cuts can create a perception of loss of power or influence for the product/engineering leader
Often you can’t deliver as much roadmap with fewer resources, so promises made to customer may be compromised
Infighting can develop between leaders and their peers in terms of who has to produce the most savings
Budget cuts can be an administrative and logistical nightmare; I have only seen a handful of reduction processes executed smoothly
Clearly, there are a lot of negatives. But as much as we don’t like to admit it, reductions can also be a net positive in some non-obvious ways, including the following:
Positives
Reductions can help focus the roadmap. Often, they can introduce a healthy constraint that encourages product / engineering teams to focus on only the highest ROI projects.
Reductions are a perfect time to reset roadmap delivery expectations with stakeholders. If you weren’t under-promising and over-delivering before this is the opportunity to begin to do so.
Budget cuts usually necessitate reviewing all the projects in the backlog. This review process can be helpful to refine scope, milestones, costs and so forth.
Under-performing resources who have lingered for too long (which doesn’t benefit them or the business) can be addressed. These non-fits can be exited and a stronger team developed.
Third party vendors often get complacent & reduce performance after several years. Cuts are a good wake-up call for them to start performing again.
Aligning Product & R&D spend with revenue & growth is important to maintain a healthy business. Reductions can encourage this alignment.
Organizations get bloated over time. Budget reductions can help streamline the team and make it easier to manage.
So, budget reductions, like many initiatives in a business, have both positives and negatives. The exact tradeoffs depend on your company and context but the above should give you a general sense of the balance.
However, cuts have a very bad name. So modern CPTOs should strive to look at budget cuts in a more balanced way.
Reductions should be undertaken with extreme caution & thoughtfulness to people, process and systems effected, but also with a clear understanding of the benefits to the business.
Here are some other articles from Technocratic that you may enjoy as well: