Final answer:
False, severe cost-cutting, especially through wage reductions, can lead to the loss of talented employees and may not be the best way to improve organizational effectiveness. Cost management is complex and can involve strategies like technological advancements or investing in employee education.
Step-by-step explanation:
The statement that the best way to improve organizational effectiveness is by severe cost-cutting is not necessarily true. While all managers do have to pay attention to costs, research suggests that there are adverse effects tied to reducing wages across the board. The adverse selection of wage cuts argument indicates that such a strategy can lead to the loss of a company's most talented workers, as they have more employment alternatives elsewhere. Organizations might hence choose layoffs or firings to reduce costs instead of across-the-board wage reductions. Moreover, industries that experience overall decreases in average total costs often do so due to advancements in technology or improvements in employee education, not solely through cost-cutting measures.