How to cut company costs and maintain a happy workforce
The Access HR Team | 1 Dec 2008 1:10 PM
Most organizations are looking to limit their costs and manage these more effectively. Companies are conducting strategic reviews looking at the company structure, the way business is done and where improvements can be made.
Reviews and restructures involve people; and there is currently two distinct reactions to the economic downturn. Some businesses are seeking to reduce their costs across the board resulting in staff layoffs to remain viable, whereas others acknowledge staffing shortages will remain beyond a slowing of the economy and are exploring alternative approaches to redundancy.
Under recessionary pressures executives grapple with cost-reduction programs, and few companies are able to sustain benefits after three years often because of poor management.
Cost reduction programs are usually ineffective due to:
Companies slip into a cycle of cost reduction which is short term and short sighted. The cycle begins when management launch an initiative to identify and implement cost reductions, and end with the savings being nothing more than deferred expenditure. The organization places no planning into sustaining savings.
The fundamentals are not addressed. Productivity is not improved, leadership does not change and cost-accommodating behaviours persist.
Before embarking on cost reduction leaders need to identify if they are looking for a quick cost reduction, and the ultimate impact cost reductions have on their workforce.
There are two options when implementing a cost reduction program; mandating or motivating.
Mandating relies on a firm resolve, discipline and fear. Targets are set, the axe falls and everyone follows through on the cost cuts. Usually mandating results in the firmness and discipline resembling bullying, negative rumours circulate, insecurities build and skepticism persists.
A motivational approach to cost reduction involves employees committing emotionally to the cost challenge. Motivators looks for ways to secure positive employee commitment - emotional as well as rational - to company decisions and behaviour change, promoting a culture of "proud to be thrifty". This approach communicates a noble purpose or positive theme that focuses their people on cost and value, and they generate informal momentum to encourage thriftiness.
For a workforce to feel positive about tasks that are not financially rewarding or intrinsically motivating requires developing an emotional commitment to support painful decisions, applying self-disciplined behaviours beyond mandatory processes, building peer respect and support for reducing costs.
In conclusion companies that undertake a cost-cutting program without a strategic plan will fail to maintain the reductions over time and risk alienating key talent. However, it is important to remember the effect of how the cost cutting program is implemented, and ask yourself - Are we forcing short term actions we later regret?
References: www.humanresourcemagazine.com.au
Navigating the retrenchment road - Craig Donaldson