The first cut is never the cheapest one

Picture a football club having a bad season. Attendance is down, sponsors are asking uncomfortable questions, and the accounts are red for the first time in a decade.

The board calls an emergency meeting, and the president arrives with a plan already decided: “From tomorrow, we train once a week instead of every day, and we trim the academy and a few contracts. Do this, and the numbers balance within a year.”

Put that plan to the fans in the stands and the reaction is not in doubt. Nobody watching a struggling team says the fix is fewer training sessions and a smaller academy.

Everybody says the opposite: get better before the next match arrives, whatever that costs — because a team that stops developing its players while it is losing does not stop losing. It just starts losing more slowly, on a smaller budget.

Replace “football club” with almost any company having a bad quarter, and swap “the academy” for whatever your own version of that line is — quality, marketing, brand, or developing your own people — and this is close to a transcript of the meeting happening in boardrooms right now.

Revenue softens, costs stay exactly where they were, and within a week the line with no obvious scoreboard impact this month is the first one struck through. Nobody would dream of telling the sales team to stop selling because sales are down. Telling the same organisation to stop developing the leaders who have to sell, decide and adapt through the downturn barely raises an eyebrow.

An expense, or an investment nobody priced?

Part of the reason is where that line sits in the accounts. An expense is something you incur, consume and forget the moment the invoice clears. An investment is something you pay for today because you expect it to return more tomorrow — which is exactly how brand budgets and R&D budgets tend to get defended even in a bad year, at least on paper.

Nobody suggests zeroing out Apple’s marketing spending the year iPhone sales dip, because everyone accepts the brand is worth something well beyond what was spent building it that year.

Interbrand has built an entire, respected valuation practice on precisely that idea: a brand’s worth is priced on the future earnings it can generate, never on its historical cost of construction.

Developing the people who will lead the business through what comes next has rarely earned that same benefit of the doubt, for one specific reason: nobody can point to the number it will produce next quarter with anything like the confidence of a sales forecast.

The cost of a decision no one can prove

That gap in confidence is not new, and it explains an old story out of a big investment bank, retold so often that the dollar figure changes with every telling but the punchline never does.

A young manager’s bad call is said to have cost the company millions. Expecting to be fired, he was kept on instead. Asked why, the managing partner is said to have replied: “Fire him? I just spent millions developing him.”

Nobody can pin down the exact figure any more, and it may be more legend than ledger entry — but the logic behind it survives the telling: a mistake is a cost, but a leader who has just learned an expensive lesson is an asset that got more valuable, not less. Most leaders would agree with that instantly if you asked them. Almost none of them run their budget as if they believed it, because the belief is easy and the accounting is hard.

The cereal aisle proved this nearly a century ago

The clearest demonstration of what happens next has nothing to do with people development at all, and it happened before anyone in a modern boardroom was born. When the Great Depression hit US household budgets in the early 1930s, Post, then the dominant name in breakfast cereal, did the instinctive thing and cut its advertising.

Kellogg, its smaller rival, did the opposite: it doubled its advertising spending and bet heavily on the new medium of radio, running “Snap, Crackle and Pop” into American living rooms while Post went quiet. By the time the Depression ended, Kellogg’s profits were up roughly 30% and it had taken the market leadership in cereal that it has never fully given up since.

Procter & Gamble ran the identical experiment at the identical moment — launching, rather than cutting, its first radio dramas, the original “soap operas” — for the same reason and with the same result. Neither company had a research paper proving radio advertising worked in a depression. They simply kept investing in the thing that builds demand while their rivals were busy protecting this quarter’s cash.

What the data actually says, a century later

The pattern repeats every time someone bothers to measure it. Bersin & Associates tracked what happened the last time an economy this size went through a serious downturn: between 2007 and 2008, US companies cut what they spent developing their people by 11% per employee, from $1,202 to $1,075 — the same instinct the Post cereal executives acted on eighty years earlier.

On the other side of the ledger, an earlier study for the American Society for Training and Development tracking hundreds of public companies through the late 1990s, found that firms investing most heavily in developing their people delivered an average total shareholder return of 36.9%, against 19.8% for firms investing least — a return 45% above the S&P 500 average for the same period.

Developing leaders is simply the modern example everyone happens to have measured properly. The underlying finding, in the cereal aisle and in the shareholder-return data alike, is the same: whatever builds tomorrow’s capability is the easiest thing to cut and the most expensive thing to have cut.

AI has not changed this calculation. It has just made it more embarrassing to get wrong. A business can now buy every employee an AI licence in an afternoon and call it a transformation — and plenty do, in the very same quarter they quietly cut the budget that would have developed anyone’s judgement about how to actually use it.

That is not two separate decisions. It is one instinct, applied twice, pulling in opposite directions inside the same finance meeting: spend freely on the tool everyone can see on a slide, and cut the line for the only thing that would have made the tool worth anything. A licence handed to leaders nobody has developed is not a productivity gain. It is a subscription with a very good excuse.

Three questions worth asking, whatever you run

Which line in your budget has no obvious scoreboard impact this month — developing your leaders, most likely — and is that the line currently on your list to cut?

If a rival did the opposite of you right now, doubled down on exactly what you are trimming, would you be confident you’d still be ahead of them in three years?

Would the answer to either question survive an actual argument with your CFO, or only a slide?

There is famous phrase for the football club president’s mistake, long before anyone had invented the boardroom or the cereal aisle: knowledge costs a great deal, but ignorance costs a great deal more. The bill for the second one simply arrives later, dressed up as a crisis nobody claims to have seen coming.

Dr Philios Andreou Sphika is the Deputy CEO and President of the Other Markets Unit, including Thailand and Asia, at BTS Group, a leading global strategy execution consulting firm specialising in the people side of strategy. For executives who are interested in connecting, Dr Philios can be reached at philios.andreou@bts.com or visit his LinkedIn profile.