When it comes to cutting costs, sacking employees is a common solution. Leon Gettler looks at 10 alternative ways to make savings
Job losses are mounting and unemployment statistics in Australia are starting to edge up. It’s a time when managers need to start cutting costs – and getting rid of staff is usually the response.
However, that might be the wrong strategy. Cutting staff numbers as a line item in a spreadsheet is easy, but it can rob managers of valuable expertise in the company. The company also loses relationships the staff member had with key stakeholders, not to mention operational knowledge. Furthermore, the cost of rehiring when the economy improves is expensive. In any case, staff cuts can have ripple effects through the broader staff pool. It’s a morale buster.
This means managers have to be creative in the way they cut costs. They should be looking at other cost areas they may be able to reduce in the short term. Here are 10 other methods to keep a lid on costs while retaining staff numbers.
1 Full-time to part-time
Many companies moved full-time staff to part-time when the global financial crisis hit in 2008. Firms such as KPMG offered staff part-time options as a way to cut costs. Getting people to cut their working time by one or two days a week can produce big savings. It also ensures brain power remains in the organisation and it helps maintain employee morale.
As part of this strategy, the company can introduce job sharing, where the business reduces the number of jobs in an area while retaining fulltime coverage. With job sharing, two people work part-time hours in what is
effectively one full-time position. Again, this potentially produces savings with little impact on the operation. Some employees might, for example, work Monday through Thursday, while others work Tuesday through Friday.
This does a lot to reduce the amount on the payroll. Giving staff one weekday off would be especially appealing to the baby boomers in the company, as they could use the free day to do things such as look after their
parents or grandchildren, learn new skills and transition into retirement. No matter how the four-day workweek is structured, the job still gets done, either by that employee or by someone working the fifth day.
Some companies have gone further and asked management working a full five-day week to take a pay cut or accept a pay freeze. This builds loyalty among staff when they see managers also doing it tough and making sacrifices.
2 Reducing equipment costs
There are different ways of slicing and dicing equipment costs to reduce outlay and create cash flow. One option is to sell the equipment and then lease it back. And with the cloud, a lot of software is moving to a subscription base, so instead of outlaying significant amounts to buy a computer system, companies can now pay a monthly subscription. This strategy generates tax deductions and creates cash flow.
3 Separate good from bad
Making the distinction between good costs and bad costs is critical, but first you need to work out your strategy. If the goal is to grow the business by 150 per cent over the next three years, the last thing managers should do is cut sales staff. On the other hand, a sponsorship with a corporate box at the MCG might be good for brand building, but in a tight market it does not generate sales, so it could be classified as a bad cost.
One of the big mistakes many companies make in hard times is cutting the marketing budget. It’s telling the market that they don’t want to grow. However, marketing is a long-term investment and companies should identify good and bad costs in marketing.
TV ads and radio ads might be scaled back but in-store promotion should remain in place if it drives sales. Similarly, some organisations might consider cutting training, but research shows this is detrimental. Training is an inexpensive way to motivate staff when pay rises are off the agenda. It can also enhance productivity and innovation, two essential ingredients for successfully combating a tough economic climate.
4 Enforced holidays
During the global financial crisis, many companies discovered staff could be encouraged to take holidays. Some companies even made deals where staff members took a mix of paid and unpaid leave. For example, there were cases where some employees took four weeks’ paid leave and two weeks’ unpaid. This could create massive savings if everyone did it. But it has to be handled with care.
5 Offer flexible hours
This is a similar approach and was again a strategy taken by many companies during the global financial crisis. Full-time employees were granted the ability to work fewer hours, relative to the amount of their pay cut. The best way to do this is to allow employees to decide on a flexible work schedule with other workers to ensure the business is appropriately staffed and customer service levels are upheld.
6 Reviewing all opex
This should be done regularly, not just in tough times. Good practice requires managers to look at operational expenditure frequently, at least annually, to ensure things are running as efficiently as possible.
Areas that could be reviewed include technology and equipment. Fax machines can be replaced by scanning equipment, accounts receivables can be put on e-payment systems and recruiting can become more targeted, perhaps using social media and other networks, so that businesses are not confronted with hundreds of job applications when they place an ad.
7 Cutting pay
Again, many companies did this during the global financial crisis. Some went so far as to poll employees to see how much they were willing to give back to keep their friends, colleagues and themselves in employment. For them there was a clear choice: a layoff or a pay cut. In most cases, if not all, staff were willing to take a pay cut.
8 Cutting deals on rent
Landlords are more willing to cut deals these days with the high level of vacancies. But managers planning to get a better deal need to plan this at least a year in advance.
9 Evenly distribute pay cuts
Nothing upsets employees more during tough times than when they see managers living the high life. Fancy new cars for executives, flying top managers first-class and lavish sales get-togethers at expensive resorts should be off the agenda.
If managers are expecting employees to take on some financial pain, they should go out of their way to demonstrate that the business is economising everywhere. That means cancelling trips, pay freezes for top managers and slimming down on expense accounts. Managers should make sure employees know it, too.
10 Embrace VOIP
VoIP (Voice over Internet Protocol, or broadband phone service) can dramatically cut phone costs. VoIP allows users to make long-distance calls. VoIP-to-VoIP calls are also free.
Combined with Skype, this can lead to massive changes. Every time people use Skype, the calls are entirely free. You can also get video, chat and document sharing to boot. It’s a growing trend. According to Sensis, 20 per cent of all small to medium enterprises in Australia have embraced VoIP as a viable business communications strategy. There is no shortage of providers.
Cutting staff to meet a short-term imperative cost might make sense for a brief period but it has repercussions for the organisation. The best managers think creatively. There are good alternatives to staff cuts and managers should look at these first.