Pyrrhic Cost Saving, Cost Cut

Pun on Phyrrhic Victory (i.e., a victory won at such cost as to be essentially a defeat.) A Pyrrhic Cost Saving or Cost Cut is a saving whose benefit that is outweighed by the negative business consequences it results in.

An example of a Pyrrhic Cost Cut was the March 2007 decision of a major US electronics retailer Circuit City to dismiss 3400 of its highest paid and longest serving employees to lower its wage bill, some 8% of its workforce – its commercial rivals including, notably, Best Buy, responded by setting up recruiting desks outside some Circuit City stores to hire the redundant sales staff; when on May 2, 2007 Circuit City announced a major loss in sales attributed by analysts to the fact that it had as a result of this cost-cutting exercise lost its best and most effective sales staff, its share-price promptly plummeted. Further compounding Circuit City’s problems was a lawsuit for age discrimination, since many of the sales force targeted for redundancy were older than average (due to the employment longevity good employees usually have perhaps.)

Circuit City soon went bankrupt – anecdotally its senior management had considerable difficulty obtaining employment, as their business judgment was widely considered to be dreadful. Notably the CEO of Circuit City, Philip J. Schoonover was named by The Wall Street Journal as the worst CEO of 2008. See Economy Class Effect; NPS.

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