Is the traditional approach to cost cutting effective in the present scenario?

The memory of the late 2000s recession still leaves a bad taste in one’s mouth. The strategies formulated by most of the companies to safeguard themselves against that situation have set a precedent that many organizations still stick to. Resorting to staff cutting or other extreme steps are the most common ways to deal with intense cost pressure. Even during small and less intense cost cutting sprees usually the first targets are ‘extra’ bills whether they are in the form of the salary of a few ‘extra’ employees or expenditures made in the form of small perks. As it seems, often these steps are based on momentary assessment without carefully analyzing the long-term effects of selected reduction targets. In a bid to show results companies often end up taking steps that may sometimes be without positive consequences or worse, may even turn out to be harmful in the longer run.
The 2008-2009 cost-cutting wave saw companies adopting a very traditional approach of freezing salaries and promotions, staff rationalization, cuts in trainings etc. When on a larger scale, cost cutting does require some strong steps, but as it turns out the strategies adopted to deal with this are often short sighted and their long term repercussions overlooked. Cost pressures are a market reality and they cannot be overlooked. In retrospect, companies may have to learn to live with it. What we have to learn is that we cannot take our human resources for granted and treat them whichever way suits us best at a particular time. Rather, in every such scenario companies have a bigger challenge in front of them, that of engaging their work force and simultaneously working on reducing their expenses. Whatever measures may be taken to release cost pressures, it is vital to analyze their long term effects and whether they are actually beneficial.

The not-so-wise measures!

1. Cutting on the training cost: Expenditures made over organizing training sessions, workshops etc. may look like an extra expense but cutting on these have negative effects in the longer run. Employees look at trainings as a learning opportunity for themselves. Such opportunities are a crucial factor for successful employee engagement. Cutting cost by doing away with training sessions may look beneficial at a point in time but in reality it might be more hazardous than beneficial. By not training and updating employees an organization affects its own productivity.
Employees may also see such steps as a lack of interest in their growth on the part of organization. When continued for longer durations, employees may even lose their faith in the organization.

2. Cut back on small perks: Cutting on small perks like compensatory office tea, or putting a price on every cup of coffee being taken from the office coffee machine are some of the steps that affects employees’ self esteem and they may start suspecting their relationship with the organization that they have been working for since so long. These small benefits are valuable motivating agents that tell a lot about an organization’s culture. Maintaining such small perks in times when employees do not have any other benefit like salary hikes or promotions to cheer themselves up would help the company atmosphere stay positive.

3. Biased approach to cost-cutting: Demarcation among employees on the basis of their position in organizational hierarchy is one of the worst steps for employee-employer relationship. Stopping cab or compensatory meal or snack facility for junior level employees at a time when senior level employees still maintain similar expenditures would not go well. This creates a great divide and it is hard to engage workers facing such demarcation. Party or get-together for senior employees at a time when junior employees are bunged up is not only an ineffective cost-cutting measure but it also affects company atmosphere. On the contrary, austerity drive by senior employees in organizations can act as a major boost for junior employees. Bosses can set a great example by traveling economy class or by bus, not using office vehicle for commuting, working extra hours, or even contributing by power saving themselves.

4. Asking employees to work extra hours: If not conveyed properly this may create panic among employees. Even if some extra work effort is required by employees it is essential to communicate it properly. Instead of increasing work hours, communicating about requirements to multitask may reap better results. Whatever the requirement may be like, it is essential that people matters and employee-employer relationships are kept at centre of all such strategies. It is vital to have proper communication and not let people get panicky. More importantly, on the part of bosses, it is important to follow what they preach. It helps in bringing the entire team on the same page and may give better results.