More on why those who cut marketing now will pay later

We often make the case for why marketing and branding investments are essential to help hospitals and health systems climb out of difficult financial times. The latest BusinessWeek gives us another example of how cutting marketing and branding efforts should be avoided if at all possible. In the article “Productivity’s up, and that’s a worry,” economist Michael Mandel makes a case that the rise of a key economic statistic – productivity – is not necessarily a good thing right now. Defined as output per worker hour, rising productivity is typically a good sign, showing how businesses are able to produce more with fewer costs. In recessions, it can be a sign that organizations have cut expenses efficiently, and are better equipped to rebound once the economy improves.

This time, however, Mandel worries that the increase in productivity is coming from the elimination of “professional” positions, educated workers that include engineers, designers, research and development workers, marketers and more. He says the .7% drop in these positions over the last year is a “rare decline.” Cutting professionals increases productivity in the short-term, but can be devastating for long-term growth. How? He gives the example of a pharmaceutical company cutting its entire research operation, which would cut costs now without impacting sales now, thus increasing productivity. But without new drugs in the pipeline, that company would be crippled in the future.

“Professionals are the people who do the research, the new-product development, the information-gathering, the training, and even the marketing which moves the economy forward,” says Mandel. “They are the main source of the ‘intangible investments’ necessary for innovation and future growth.”

This trend impacts the economy as a whole, but also individual companies who pursue such cost-cutting. In another article in the same issue, “How the Mighty Fall,” renowned author Jim Collins gives an excerpt from his new book of the same name, which includes the example of Anne Mulchay’s amazing turnaround of Xerox. When she became CEO of the foundering company in 2001, the company faced Chapter 11. While she cut $2.5 billion in costs from the company, the article says, “she also held fast against a torrent of advice from outsiders to cut research and development to save the company.” In fact, she actually increased the investment in R & D as a percentage of sales during the difficult time. As a result, Xerox had a healthy balance sheet and annual profits of $1 billion by 2006.

As hospitals and health systems continue to be battered by difficult financial times, they’re under increased pressure to cut “nonessential” costs, and marketing often takes it on the chin. But those organizations who realize marketing and brand building are the very strategies that will help them pull out of tough times will do all they can to invest in these disciplines.

Potentially-related posts:

1. Valuing Marketing and Innovation in Healthcare: One more reason it’s an uphill battle
2. Marketing hospitals is stupid
3. Looking under the rug – what insurers pay providers now public in Minnesota

This article was posted by Chris Bevolo on Monday, May 18th, 2009 at 10:14 am, and was filed under Branding, Marketing, Strategy, Trends.

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