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Eight Steps to Immediately Reduce Workforce Costs

Are current economic conditions forcing your company to significantly cut workforce operating costs? Learn eight key steps to making cuts effectively in this executive brief.

April 2, 2009
Sponsored by SuccessFactors

Current economic conditions are forcing many companies to significantly reduce workforce operating costs. While this is often necessary to keep companies financially solvent during difficult times, if done poorly, it is just as likely to exacerbate an already difficult situation.

Here are eight steps that will help you make effective, efficient decisions to immediately reduce workforce costs:

  1. Cut spending first before headcount. Downsizing your core, productive workforce is like cutting into the “muscle” that runs your company. It may be necessary to survive lean economic times, but it can do long-term damage to a company’s culture, knowledge base, and morale. Instead, ask employees if they will make temporary concessions — like unpaid leave, salary reductions and shortened work schedules — rather than undergo layoffs.
  2. Upgrade and optimize the workforce, don’t just reduce it. Work with your line of business managers to prioritize jobs, departments, and operating units based on their impact on company revenue, the cost required to maintain them, and the ability to maintain these functions with fewer staff. Next, review the capabilities of your employees to determine if they are optimally deployed to support these critical elements of your business. Require every manager to force rank their employees using criteria set at the company level — and base your decisions on those rankings. You may actually increase staffing levels in more profitable departments while radically decreasing headcount in others.
  3. It is better to overcut once than undercut multiple times. Get through the reductions as rapidly as possible and re-establish the company on stable financial footing. This is not the time to have employees distracted by questions such as “am I going to survive the next round of downsizing?” Make the cuts quickly, efficiently, effectively and fairly and then move on.
  4. Make reduction decisions on clear, consistent and transparent criteria. Decisions about which employees to let go should be based on data and rigorous processes, starting with a thorough review of the company’s current operations and future business direction. Once you determine the number and type of employees needed to support the business going forward, begin making workforce reductions based on the following three criteria:
  • Employee Capabilities and Skills. Begin with a clear evaluation of the skills possessed by each employee, the role these skills play relative to business operations and whether these skills can be easily replaced if this employee is let go.
  • Employee Performance and Productivity. Keep the highest-performing employees who have demonstrated a strong commitment to the success of the organization.
  • Employee Cost. It may be better to lay off a small number of highly paid workers instead of large number of less expensive employees. Use structured-assessment tools and techniques to rank and categorize employees according to the criteria here.

When making decisions about headcount reductions, work closely with your human resources department to ensure you are not at risk of violating any laws or existing contracts.

  1. Treat people right. If you let people go with little warning, inadequate explanation and little to no financial support, survivors will begin thinking: “Wow, I don’t want that to happen to me.” Your best performers — usually the ones with the most alternative job opportunities — will begin looking around for other organizations that they feel provide a more stable, safer place of employment.
  2. Communicate the new vision. Be clear about why decisions were made to reduce the workforce, what actions were taken prior to making these decisions, how the decisions were carried out and future plans going forward. The more you trust employees with the full picture of the company’s financial situation, the more they will feel empowered to help the company meet these challenges.
  3. Succession planning. Think about who will be responsible for handling the work that remains after employees leave. Define transition and succession plans to ensure minimal disruption of critical organizational functions following the reduction.
  4. Learn from the experience. Most companies that have been in existence for more than 25 years have had to make workforce reductions more than once in their history. So recognize that you may have to go through this again. But seek to learn from your experience so that:
  1. Your company makes sound decisions that allow you to weather future economic downturns without the need to trim your workforce.
  2. Subsequent workforce reductions, if required, are done more effectively the next time.

For more information, please visit www.successfactors.com.