Cut costs, not people

2012-06-28 14:35

Georgina Guedes

On Facebook yesterday, a friend of mine posted an infographic about the absurdities of capitalism. One of the charts showed that while workers produce more than they ever did before, wages remain static. The caption suggested that this was how Wall Street got so rich.

This is naturally based on American statistics but the same can be said, I imagine, for business around the world. Salaries and contract fees have seen negligible growth in recent years, a situation attributed to the global economic crisis.

Friends and family have been asked to tighten their belts, reduce their fees and accept pay cuts – all of which is fair enough if the alternative is no work at all. However, one friend pointed out to me that in the wake of agreeing to a reduced fee for a client, she watched every manner of profligate spending taking place on the production she then bitterly worked on.

The sad truth is that businesses often place a lower value on their people than they do on just about any other area of business. It's easy to enforce a salary freeze, but when cost saving requires some smart thinking or universal belt tightening within the business, it's not even considered.

There is the story of how around 20 years ago, American Airlines saved $40 000 a year by removing one olive from each of the salads it served to its passengers. While $40 000 is hardly a significant amount in today's terms (and probably wasn't then), it does bear testimony to the fact that small cost savings can have a significant impact thanks to economies of scale.

Big businesses spend big money in millions of tiny ways. They provide scalding hot water in their kitchens and bathrooms. They leave the lights on all night long. Their buildings don't allow for the natural flow of air, encouraging the use of expensive air-conditioning units. They provide lavish cocktail snacks that nobody eats at corporate functions.

Conscientious cost saving and the ostentation of minimalism should have become the watchwords of modern business, but instead, the beast trundles on as before, tossing about massive bonuses for executives and keeping the lights on at full wattage, despite all arguments against such behaviour.

The problem with rethinking these kinds of scenarios is that they require behaviour change rather than a simple salary slash or round of retrenchments. Who cares if the tea lady has to empty bins while she does her rounds as long as the CEO can still wash his hands in comfort in the executive loo?

One argument against cutting back in a thousand small ways is that it's difficult to communicate and requires universal co-operation. However, while employees can certainly be inconsiderate about wasting company resources, if confronted and communicated with, they'll generally pull their weight to save money and save their jobs.

It doesn't require a consultant or a poster campaign or a Powerpoint presentation or a roadshow - all it takes is making the decision and then talking about it. Businesses are made out of people, after all.

- Georgina Guedes is a freelance writer. You can follow @georginaguedes on Twitter.

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  • Vaaldonkie - 2012-06-28 14:56

    Having another round of "restructuring", are we? How droll.

  • harry.hobbit.90 - 2012-06-28 15:04

    Georgina. There is no better excuse for cutting the worse performing people out of a company, than decreasing profits. It's not really about cutting people. It's about cutting the worse part of the workforce, which have been identified after having been tried. Its difficult to tell the ambitious, value adding ones from the entitlement feeling ones at the interview stage. Of course when profits really are dire, then you do have to get rid of the people from the business units that wont be generating returns in the future. Rich people get that way by not being stupid with their money.

      harry.hobbit.90 - 2012-06-28 15:40

      Vote Dislike to demonstrate preference for denial rather than reality. :)

      Vicker - 2012-06-29 08:00

      @harry - nice to see there are others who understand the realities of running a business...underperforming staff have no place in any business. Why penalise the good workers by expecting them to shoulder a heavier burden when one can get rid of the lazy ones rather...

  • Grant - 2012-06-28 15:54

    I have had to perform company-saving cost-cutting before, and trust me, I was VERY aware of the potential loss in production when retrenching staff. We did the "lots of small ways to cut costs", and had regular staff meetings to come up with fresh ideas, and to promote a saving mentality... But do you think that I could get people to actually CLOSE THE TAP after washing their hands??? People tend to want "easy" more than they want to save jobs...

  • fatima.raju - 2012-06-28 16:26

    excellent article...!!!

  • David - 2012-06-28 18:56

    Interesting article, but i think it is more complex then that. In my experience, employers are contentiously trying to ensure that they retain talent. I think you are ignoring the fact that companies need to offer competitive salaries or else their talent will go to a competitor. This may not be true of your unskilled, semi-skilled labour and advancing technology can mean peoples positions are made more redundant. Capitalism has its flaws as it is ultimately bottom line driven. Companies will shelf out-dated inefficient systems just as readily as they will people. However the alternative of state owned enterprises and socialist models also have major flaws. You might have a job, but the company will not be as flexible and effeiect as its competitiotors (With high overhead costs and large labour forces) to the point where the whole business may need to close. Ends with the debate of does the company sacrifice the few in the interest of the many?

  • Vicker - 2012-06-29 07:56

    I assume you have never owned your own business, Georgina? Your article may be true to a limited extent in corporate, but in the SMME segment it doesnt hold any water whatsoever. I have survived fairly well despite a fairly large number of others in my industry closing down in the last few years. Even so I have tightened my proverbial belt to a point where there are no more notches left. This includes buying smarter, spending smarter, tightening up efficiencies further. But what to do now to continue to grow and to show a profit (this is after all my ONLY motivation to be in business, NOT to primarily employ as many workers as possible out of the goodness of my heart)? Only way is to get rid of the dead wood. And what a difference it makes, not only to the bottom line, but also to the overall morale in the workplace. And it does not affect workload distribution very much either, as it was these workers who werent doing very much anyway. In any event, if the CEO wants the luxury of his "executive loo" let him have it. It is after all his money, and he built his company to what it is, and in so doing provides employment in the first place to many. If they have a problem with it, then they are welcome to start their own businesses and have their own "executive loos". And if they are not able to, well thats just life. No - I remain unapologetically a capitalist, will never become a socialist, and the wellbeing of my family and I come before that of anyone else.

  • lesley.ganserer - 2012-06-30 20:46

    Unfortunately companies retrench the little people so that the fatcats can continue to live in the lap of luxury.

  • flysouth - 2012-07-01 14:12

    You have obviously never actually run a business. If you had you will know that cost-cutting measures of the nature you suggest are usually the first to be implemented along with attempts at increased efficiencies designed also to maintain production levels whilst decreasing production costs. But these invariably do not do the trick in a continually an repeatedly slumping economy (as we have in SA at this time!) and staff represent the highest costs of all, thus these must be reduced at some point if the company is to survive and hang-on for better days. Yes - after removing one olive per plate and saving that $40K one eventually has to remove at least one (or more) wage-bill, itself often the equivalent or more in savings to all the olives! Reality bites - always! The world and economics have a reality all of their own, which cannot be changed by your own desires.

  • michael.kleber.376 - 2012-07-06 13:55

    Good article makes you think , but its both sides that can save workers and management , some people need constant supervision and when there is no manager around do anything but what they supposed to do , so as i said its up to the individual as well to make sure the company will be worse off without him or her,

  • Des Testing - 2012-08-15 13:32

    Testing comments

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