What management needs to do, regardless of the health of the economy, is generate a degree of sales productivity. The reality is that in good times sales productivity gains are easy, often almost automatic. Generating greater sales while incurring slightly greater expenses is an achievable goal for almost every firm. On the downside, however, reducing expenses as sales fall proves to be a very difficult undertaking. In large part this is due to a lack of anticipation of the imminence of sales declines.
Management is left in a reactive, defensive mode.
With inflation largely controlled at present, management needs a new mindset. That mindset must be based upon the assumption that no line item will be increased simply because it has always increased in the past. Every expense increase should be challenged. However, in the extended period of growth of the 1990s, contingency planning has largely been abandoned in favor of a one way view of expense planning. Namely, how much do expenses need to be increased to support increased sales.