Saturday, February 28, 2009

Cut Costs Without Cutting Head Count

When money is tight and budgets constrict, many organizations turn to downsizing to cut costs. That's certainly the case currently. U.S. planned layoffs were up a whopping 275 percent in December compared to last year, according to Reuters.

Yet job cuts aren't the only way for companies to reduce spending - and many times they're not the best way, either. According to a 1995 study by William McKinley, Carol Sanchez and Allen Schick in the Academy of Management Journal, "[T]here is considerable evidence that downsizing does not reduce expenses as much as desired, and that sometimes expenses may actually increase."

The authors cited a Wyatt Co. survey that found that fewer than half of respondents who were using restructuring for cost reduction actually met their targets and that only 22 percent of restructuring companies managed to increase productivity to their satisfaction. This likely is still the case today.

The bottom line is that while layoffs are sometimes an unpleasant but necessary reality, they don't have to be the only reality. There are ways for companies to cut costs without resorting to cutting head count in hourly workforces, according to John Anderson, director of retail marketing at Kronos, a workforce and employee management software company.

Anderson offered five alternative steps companies can take to control costs:

1. Align labor budgeting process with strategic goals.

Many budgeting processes don't consider the hidden costs associated with managing a workforce. Companies should ensure their labor budgeting is linked with established business objectives and productivity models.

2. Confirm the proper head count mix.

The right ratio of full-time to part-time workers will keep productivity at the maximum and costs at the minimum. Anderson said companies should be open to the idea that they can reduce spending by actually adding head count in the form of part-time labor.

3. Ensure proper labor allocation.

A lack of understanding of employees' day-to-day work can lead companies to improperly allot spending. Thus, talent managers should ensure job descriptions match up with the actual work done and are in alignment with strategic objectives. They also should examine periods of productivity across the organization and spend less labor money on slower times.

4. Remove the waste.

Companies should look closely at their labor-tracking processes and identify areas for savings. For example, employees with benefits might currently be paid for time they're not working or employees may be working during unscheduled times.

5. Maximize efficiencies

According to Anderson, every company has inefficiencies, and the more they're identified and reduced, the more money can be saved. He said companies should consider using technology to maximize efficiency in areas such as employee engagement, leave requests or shift availability preferences.

Ref: Agatha Gilmore

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