What is a potential negative impact of cost-cutting on a business's performance?

Cost-cutting can significantly affect a company's performance, particularly in terms of product or service quality. When a business reduces its expenses, it often does so by lowering investment in critical areas such as research and development, quality control, and employee training. This can lead to a decline in the quality of the products or services offered.

For example, if a company cuts costs in manufacturing, it may choose to use cheaper materials or reduce the rigor of quality assurance processes. This could result in products that do not meet customer expectations or industry standards, ultimately harming the brand's reputation and leading to reduced customer satisfaction and loyalty. Customers are less likely to return or recommend the business if they consistently receive inferior products or services.

In contrast, increasing market share and higher employee morale are generally positive outcomes that may arise from sound business strategies, not from cost-cutting measures. Lower training costs might initially seem advantageous, but insufficient training can lead to a poorly skilled workforce, further compromising quality and overall business performance. Thus, decreased product or service quality stands out as a critical potential negative impact when a business opts for cost-cutting strategies.