I have always wondered as to why organizations tend to focus on employee cost reduction at the first instance under any crisis situation! While employee cost in most organizations especially in manufacturing sector will be a negligible as compared to material cost, the tendency is to focus on how to reduce employees in order to tide over any crisis.
I was reminded of the famous British management thinker Charles Handy. He once spoke in Delhi for the Economic Times summit and shared a beautiful formula, which can be depicted as follows :
Business Success = ½# x 2*x 3$
Note ; # reduce employees by half, * double your sales and $ profits will treble.
He explained that most CEOs believe that in any crisis situation if they are able to reduce employees by half, their sales will double and their profits will treble. He further went to state that as long as CEO’s remember that they could also fall in the half of employees who are let go, they would take the right decisions for their organizations. This is the bitter truth even today.
The Covid crisis will impact businesses adversely. Many CEOs would think of ways and means of cutting employee numbers so that they can tide over this business downturn. While that may be an easy way out, CEO’s may have to realize that employees win customers and employee loyalty sustains organizations. With this premise in mind, I thought I could share ideas of how employee cost could be optimized even without having to reduce employee numbers.
In this article, I will attempt to share a few ideas of employee cost reduction without having to reduce manpower :
a. Employee Salary reduction : While many organizations may consider this a taboo, it is fine in a crisis situation to reduce salaries rather than people losing jobs. It has to start from the CEO and go downwards and not the other way around. If possible, we should spare the lowest level of employees in this exercise.
b. Salary structure review : This could another way of linking salary more to performance than level or designation. Further looking at fixed to variable pay, review increments, promotions linked to role, salary bands etc. There are multiple ways to do this and can be done without employees losing jobs.
c. Benefits Review : There are various benefits which organizations evolve over a period of time. This is the time to review the same and monetise wherever possible or eliminate them. It could range from leave, holidays, copay in medical insurance and so on. There are again varied ways of dealing with this without impacting employees in any direct way.
d. Review Organization structure: It is the right time to make the organization leaner and more effective. Invariably, in most organizations, layers get added just to create positions for people to be promoted or someone’s ego to be satisfied. Every part of the organization can be reviewed and all unnecessary levels can be eliminated. This will make it more efficient and responsive to customers.
e. Employee involvement & engagement : This is the best time to harness the full potential of employees. Those who do the work know best where we could improve and reduce cost. So, if we are able to find ways and means of involving employees in idea generation and execution, cost reduction can easily be achieved in different aspects of work in all functions. We need to suitably reward employees for the same linking it to the savings accrued and the benefits to the organization.
f. Hidden subsidies : Organizations tend to build a lot of hidden subsidies which are neither visible to the employees nor to the organization. It may be time to review all of them and again monetise them or eliminate them if they don’t serve the purpose for which it is created. This could include canteen, transport, concierge, travel allowances etc.
g. Review office spaces : Real estate is one of the biggest cost amongst all overheads. Now that even the sceptics have accepted “Work from Home” as an option, it may be worthwhile to review the need for large office spaces and reduce cost. We could consider 50% of field sales and service staff to work from home and visit offices may be once a week to submit claims or follow up on issues. We could review offices, factories, guest houses and the like and rationalize the same. We could also eliminate fixed seats for employees and make flexible offices spaces as a way of life.
Employee will not mind any of these changes provided we communicate effectively and authentically. Any employee will appreciate that it is better to take a cut in salary or benefits rather than lose a job. If employees are told that all these measures will ensure job security for all, it will be highly appreciated. The success of all these measures will lie in effective planning, communication, execution and rigorous reviews.
I thought about all this with only one objective of saving jobs. I will be happy to consult with any organization pro-bono to plan and execute any or all of the above ideas. I can detail them out for you in consultation with your internal teams so as to customize it for your organization.
I need not be paid a single rupee for this service. If the organization is able to save jobs, my mission is accomplished. If the organization saves employee cost without reducing its number of employees and is able to quantify savings, I will be delighted.
At the end, if organizations achieve their goals, we can find ways and means of contributing to my social cause of “Eradicating preventable blindness amongst children” and I will be highly indebted to them always.
I have committed to find ways and means of giving back to society in the second innings of my life and saving employee jobs in a crisis could be one way of accomplishing my mission.
3 thoughts on “How to reduce employee cost without reducing employee numbers ???”
I am in agreement with you sir, it’s always better to have the job in these special times.
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I have heard a different interpretation of the formula:
Reduce manpower no. by half, pay twice the salary to the remaining, get three times their productivity
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You can be guru of Charles handy