In business, a cost-cutting death spiral is something that unfortunately occurs with regularity. It’s a “one bad decision follows another” scenario that starts with executives looking for ways to keep a company solvent and ends with them closing the company’s doors.

The continued popularity of process improvement is partially driven by smart business leaders trying to reduce the risk of starting a death spiral. They know that one of the distinguishing characteristics of a business death spiral is that you don’t know you’re in one until it is too late.

Process improvement methodologies such as Lean Six Sigma and its practical set of tools and techniques help businesses avoid this fatal path. They can help companies cut costs without taking drastic measures.

What is a Cost-Cutting Death Spiral?

A company that does not continuously seek to improve processes is a likely candidate for falling into a cost-cutting death spiral.

This is not to be confused with the accounting death spiral that involves incorrect data leading to businesses cutting products they think are performing poorly but are actually doing well. Or the death spiral that happens when a business no longer has a sustainable model, such as what has happened to most traditional print media after the internet took off in the late 1990s/early 2000s.

A cost-cutting death spiral begins when a company experiences a reduction in profits or when leaders set a profit target that the business does not hit. In response, management institutes a series of cost-cutting measures such as salary freezes and hiring freezes. Unfilled vacancies can lead to more work for existing staff. Talented people also often leave companies in this situation, putting even more work on those who remain.

This can lead to a less productive workforce, which can further reduce revenue and lead to more cost cutting, including staff layoffs and ending certain product lines or services. The remaining staff becomes even more burdened. Quality drops, customers start spending their money with competitors, and the cost-cutting death spiral continues on its long, drawn-out path to the bottom.

How Process Improvement Can Stop the Death Spiral

Process improvement can help prevent a death spiral before it starts. Rather than cutting costs with blunt axes such as hiring and salary freezes, business travel cuts or layoffs, businesses can use the more precise scalpel of process improvement.

Writing about this issue in Forbes, Adam Coffey, a Forbes Councils member and founding partner of CEO Advisory Guru, LLC, advises business leaders that “instead of cutting costs for the sake of cutting costs, focus on process improvement. Ask, “Why do we do what we do?” Figure out how to redesign and simplify how you do things. If you don’t, you may find yourself in a lot of trouble.”

Coffey noted that in today’s business world, following the advice of “if it ain’t broke, don’t fix it” is some of the worst advice a business leader can follow. By constantly asking why people do a process in a certain way, business leaders can foster a culture of continuous improvement that leads to more efficient operations that do not need to take drastic actions during a dip in revenue.

He said this need for a commitment to continuous process improvement is key for business success. “That’s why, when I come into a large organization as a new CEO, one of the first things I do is hire people with Six Sigma or Lean manufacturing backgrounds.”

Lean Six Sigma Tools That Can Help

Coffey wrote that in that situation, he does not hire those with expertise in Lean to work in a company, but rather on a company. They find ways to make operations more efficient and effective. They also combine Lean and Six Sigma tools and techniques that help them succeed.

Process mapping: This provides a visual, in-depth breakdown of every step in a process. By creating a flowchart of how a process works, it’s easier to see the places where problems frequently occur.

Value stream mapping: A type of process map that identifies all the different tasks and actions that go into making a product, and then determines which ones add value to the customers and which ones do not.

The Five Whys: This popular Six Sigma tool helps teams to “peel the onion” on a problem layer by layer, eventually reaching the root cause of a problem.

The Eight Wastes of Lean: By focusing on the eight wastes of Lean, businesses can more quickly address issues that lead to errors and higher costs.

Control chart: A control chart helps organizations monitor a process over a longer period of time, alerting teams when variations occur in a process. Teams accomplish this by inputting data on an operation and determining whether the output falls between control limits.

Any of these techniques or tools can help companies deal better with cost-control at all times, rather than when finances hit a bump in the road. It also can reduce the need for actions that can result in a cost-cutting death spiral.

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