Dare to dream !

Want to help your business to cut cost? Need a plan to survive the recession? What about retrenching some of your employees? Do you think that is a good way to cut cost?

Yes, and no.

It’s a good thing to reduce the total workforce since that will surely help reduce the total cost significantly. But do bear in mind that reducing the workforce will also reduce the productivity rate of your business. However, you can minimize the drop in productiviy if you only remove the workforce which is not productive. The problem thing, most businesses don’t really care about that. They care about the numbers. They care about the total cost they are required to pay now. And they are desperate.

Thus, they reduce the workforce without taking the time to select the proper people to be “removed”. Even if they do that, there will surely be some mistakes and some important and productive people will be reduced. And reducing your skilled and good workforce will be bad for your business. It might cause your business to suffer a heavier cost than you originally wanted. Always remove the bad performers and keep the good ones.

That is why in my opinion, I feel that reducing the workforce should always be the last resort. There are many other things which you can try to reduce. For example, reducing the total salary package of the top management people. By reducing 20% of their pay, you can surely keep some of the better employees at the bottom of the food chain. But most of these “bosses” will not be willing to sacrifice their own skin for the business.

Maybe the business can get rid of the more expensive clients? Clients who are giving more troubles (thus higher cost) than anything else. Get rid of them, and focus on other clients who are less expensive and more profitable.

If it’s cheaper to do something by outsourcing, then do it. Having a dedicated team to do a non-core jobs (non-core, in other words, means not profitable) can be quite costly. Or if you think it is more cost efficient to have your own people do it, then by all means, let your own people do such non-core jobs. It really depends on what your business wants to focus on.

Reduce the salary of employees is also a good option. As long as you do it company wide and don’t overdo it, then it should be fine. A 5-10% drop for 1 year is always better than retrenching people. Just make sure you give a timeline to your people because that will be an important promise. If you don’t revert their salary back after that 1 year, then be prepared to lose a lot of good people and also have your reputation ruined. Also, don’t ask for a big cut all of a sudden. 5-10% is still okay but 20-30% is not okay at all. And if you are planning to do this, do ensure you still keep your employee benefits because that will help retain the good people.

Besides that, controlling your company’s other expenditure is also important. Bosses using Business Class to fly? Change to Economy then, or maybe Air Asia. Also, stop all the external trainings unless they are necessary. Start giving trainings internally. I think by doing those, you can actually save quite a lot.

At the end of the day, what kind of cost to cut depends on your business’ priority and direction. But one word of advice, if you want your business to sustain and survive this recession, always try your best to keep your good and productive people. Without them, your business will find it very difficult to recover even if your business manages to survive through the global recession.

Hope it helps.