Clipping coupons: Cutting costs instead of personnel

In light of the current economic climate, much has been said about layoffs and how to handle them. Maybe we should, instead, take a closer look at what it takes to avoid them altogether. A company's first response to signs of trouble does not have to be pink and in slip form. Unfortunately, i4cp's own Pulse Survey Findings: Cost-Cutting Measures earlier this year found that layoffs were third in terms of getting serious consideration on a list of ways to cut costs, below reducing discretionary spending (duh) and outsourcing.

Avoiding layoffs goes far beyond keeping a good public image. There are real costs associated with downsizing that are not always calculated. Sometimes business leaders see how much they can save through reduced headcount and just start salivating. What they may be forgetting is that downsizing can often result in the loss of key talent, which can be expensive to replace. Also, the amount of work rarely gets downsized, so survivors are put under a lot of stress during and after a layoff. The loss of creativity, decline in morale, costs of training and even a potential loss of sales have a real effect on the bottom line.

So, what are some of the ways to avoid layoffs? Unfortunately, one of the best strategies is one that should be implemented during good economic times – strategic workforce planning. But, it's never too late to start, right? Having a lean staff that can readily adapt to new challenges and changes is essential for weathering economic ups and downs. Employees who are cross-trained can jump into other areas as different parts of the business pick up or slow down. New permanent hires should be a last resort to handle fluctuating workloads. Instead, using strategies like overtime or contract work are usually better short-term solutions to upswings.

Once an organization has its optimal workforce (it could happen), it's time to look at other strategies to avoid layoffs. The first would be to freeze hiring altogether and let natural attrition take its course. This is obviously not an immediate solution, but it is relatively painless. Just be sure that key talent is not walking out the door without being replaced. Also, a pay and benefits freeze works as well. Most employees can understand not getting a raise when it means not having a round of layoffs, as long as the business reason is clearly communicated. In extreme cases, a reduction in pay and benefits can also be considered.

OK, remember how we talked about using overtime during boom times to manage the workload? Once things get tough, it's time to turn off the tap. Eliminating overtime can greatly reduce costs and also makes it possible to spread the available work around more evenly. Also, the contingent workers who were brought in to help during the busy times can be let go now that things have slowed down. That's the whole point of contingent workers – their employment is contingent on the company needing them.

Let's say, though, that the previous cost-cutting solutions weren't enough and now it's really penny-pinching time. When faced with imminent layoffs, it's worth it to ask employees to take unpaid vacations or voluntary leaves of absence. Many times this is preferable to losing a job altogether. Also, companies can offer buyouts for voluntary termination (e.g., General Motors) and encourage older workers to take early retirement. Early retirement can mean increased benefits over a longer period and a lump-sum payment for the worker but still equates to immediate savings in operational costs for the company in salary and taxes.

While many companies consider outsourcing when facing financial trouble (as evidenced by our cost-cutting survey), it might actually be a better time to bring outsourced work home. If it's at all possible to perform a function with the currently available workforce, it may be worth considering canceling an outsourcing contract. It can be done. Starbucks canceled a massive HR outsourcing contract eight months into the deal because of the financial slowdown the company was facing.

Some of these methods can work for some companies, and some are simply impossible at others. The point is that there are many places to look for hidden savings before counting heads. Let's face it, the biggest operational cost most companies has is its workforce, but without it, what is it you're trying to save? \t\t\t

For more on this and other topics, look to i4cp's Corporate Restructuring Knowledge Center.

David Wentworth
David Wentworth, Senior Research Analyst
David Wentworth has been a research analyst for the Institute for Corporate Productivity since 2005. David has previously worked with digital media development and delivery, and currently researches several topics for i4cp, including workforce technology and the outsourcing of human resources. David has a bachelor’s degree from the University of Massachusetts.