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How do you cut costs without layoffs?
Pink slips have been pretty common among workers over the past couple of years, but there are a few companies I know that have managed to cut costs without reducing their workforce. Some offices have frozen all hiring and others have offered early retirement packages. What have you done to cut costs without laying off any of your workers? What strategies would you suggest to a company who is in this unfortunate position?
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4 Answers
I think sometimes companies overlook the cost of contractors as they do not show in headcount costs but somewhere else like under procurement (hence do not go through the normal HR approval process). The total cost of employment need to be reviewed including contractors and and casuals and scale back their use where possible. In relation to contractors, companies too often approve a higher per diem cost for a "project" when the requirement of that position is on going and find themselves in a position to want to offer continuing employment. The employment contract negotiations become difficult because of the contractor's inflated salary and some company just offer at the higher rate and accept that as an anomany. This as we all know is poor remuneration management.
I believe another big mistake that companies often make is restructures for the sake of appearing to be doing something to reduce costs. Too often a restructure occurs which is poorly planned and executed and employees are made redundant and then reemployed sometime later as a consultant (at a higher cost). Some fast paced organisation need to be agile and change quickly but the initial strategy should not change drastically.
A good way to reduce costs without reducing headcount is to encourage flexible work. If you have a small office and can provide adequate technology and processes in place to stay in touch with them and measure their performance you could save costs by closing the office and enable work from home or hire virtual office for meetings. The upside of a virtual office is that you can hire a posh space in the CBD and the maintenance cost is significantly reduced. The cost of the receptionists can be shared also reducing cost. It will also look quite impressive to your clients rather than maintaining an office yourself. This solution may not work for all organisations but if you identify a staff population that predominantly work on projects or sales people who are on the road all the time, you may be able to implement this solution for that population.
Ashley, I believe the best way to reduce costs without layoffs is to educate your employees on financial costs. Imagine if your employees understood that out of every dollar, the company only gets to keep 10 cents on average.
When organizations make the investment to increase the financial literacy and business acumen of key employees, they engage these employees in the overall financial health and strategic success of the enterprise and build commitment to the company’s vision and critical change initiatives.
The product I use only requires a one day investment, the ROI is very high.
Hi, Ashley: You already have some good answers. I'll see if I can add something helpful.
In most organizations, labor is the highest cost, so it's difficult to reduce cost without reducing the number of employees. Probably the most effective approach would include multiple strategies.
First, look at personnel strategies:
1. Let attrition reduce the size of the workforce
2. I would imagine that a company facing this would already have disallowed any overtime. If not, look at how to spread the workload equitably.
3. Think about job sharing. It may reduce hours a bit, but it can avoid layoffs.
4. Identify any employees who may be close to retirement and discuss early retirements
5. Identify other employees who may be thinking about leaving or cutting back for other reasons (school, having a baby, getting close to retirement, wanting to spend more time with family, can get a second job, career advancement, military service, etc.),
6. See if your competitors have openings and help your employees transition.
7. Retrain workers to fill jobs in other areas of the company
Next, look at productivity:
1. Introduce continuous process imporvement
2. Identify opportunities to lean out your processes
These items will require you to enage your entire workforce in identifying and eliminating waste and inefficiencies. It can be a great motivator. You'll need to find some expert help to get you headed in this direction if the concept is new to the organization.
Next, review your benefits package. There are other posts here in FOCUS that address this.
Of course, one way to reduce costs is to increase sales without losing your increased margin to increased costs. Again, process improvement and lean engineering can help with this.
You increase productivity! If two people are producing two widgets per hour, your cost per widget is one hour. If you lay off one person without increasing productivity, your cost per widget is one hour; but you decrease output by one widget.
In order to cut costs, you have to increase productivity. You train two people to produce four widgets per hour, then you have cut costs by half - with no layoff.
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