In my line of work, as you can imagine, I see all sorts of organisation wide announcements from the top. A frequently occurring announcement that I see (thankfully not in the same organisation all the time!) are those top-down cost targets, typically announced via email to the whole organisation. In most cases these messages are attached to head-count reductions, and in others policy changes such as; travel bans, recruitment freezes, termination of contractor/agency staff, and the like. These announcements in themselves are not the issue that I wish to talk about – in fact, such an announcement can be a healthy message if positioned with the appropriate context, credibility and rationale.

But, this type of announcement does make me wonder…Does this organisation want to slice the low hanging fruit and get some financial benefit for the short term? Or…Does this organisation assume that a decision of this nature will yield a sustainable cost reduction and productivity improvement?

Either strategy is valid depending on the organisation’s context, but it is more about the approach to support the strategy that usually concerns me. The ‘What’ is mostly clear in the announcement, but the ‘How’ is often not thought through, or not communicated. So a gap emerges and undesired outcomes surface as activity towards the target progresses.

I have often witnessed these kinds of undesired side effects of cost-cutting targets:

  • Unplanned attrition of high performers.
  • Key roles and business projects being impacted through a sudden loss of resource.
  • Employee loyalty diminishing as they start considering alternative options to safe-guard their career plans.
  • Employees becoming disengaged as they wonder whether the business is serious about the strategic goals and objectives that were communicated in the recent Strategy Conference.
  • Contractors and consultants starting to creep in through the back door to plug resource gaps but without showing up in headcount numbers.
  • Ineffective processes and working practices becoming even more ineffective as skills/knowledge leave the business, and an already manual process becomes even more resource deficient/dependent.

And yet by being clear on both the ‘What’ AND the ‘How’, so many of these risks could be mitigated. Let’s start with the top team and ensuring that they are aligned on the longevity of the cost cutting strategy:

  1. Is this a temporary measure to ensure we get through this financial year?
  2. Is this about our culture? Are we doing this to start to instill a cost-conscious mind set and hence avoid drastic cost-cutting measures in the future?
  3. Is this a long term cost reduction strategy for us? Do we need to understand our potential entitlement and take inefficiency out of our entire system within the organisation, rather than salami-slicing?

Or… is it all of the above?

Depending on this clarity and direction, the next level of ‘How’ thinking is easier to figure out,some examples include;

  • Ensuring that high performers are identified and performance related incentives are thought through AHEAD of any major announcements.
  • Equipping line managers with the data, skills and authority to identify and act upon the cost saving opportunities in their area.
  • Being clear on no-go areas in the organisation so as to safeguard initiatives and key roles that are imperative for the business’ strategy.
  • Instilling compliance to supporting policies, and tracking budgets to ensure that as costs on certain line items decrease, there is no correlating increase in other line items.
  • Undertaking a diagnostic to evaluate true optimisation opportunity if a long term strategy is required – particularly focusing on organisation design and process where there are usually many hidden factories.
  • Ensuring that any major cost reduction decisions are backed up with data and evidence.
  • Beating the grapevine (or perhaps proactively leveraging it!) by putting skill and focus on a communication plan to ensure that appropriate context, positioning and updates are provided.

…the list could go on – but I hope the examples give you a sense for the approach that needs to be designed to support the top-level announcement.

Of course, the sensitivity of some of these situations is such that there is a natural constraint to how much thinking and preparation can be done prior to the announcement. Often, the mandate comes from the Board, and the Executive Team are left to react accordingly.

Such announcements never lead me to question the decision being announced, but more to consider the level of thinking that has gone on prior to making the announcement to ensure that the decision is supported by an approach that can be readily rolled out and monitored, and that all implications have been thought through so that risks are managed proactively.

What is your experience on this topic? Do you have specific helpful inputs to ensure that cost-cutting exercises are designed to realise true benefits without the undesired side-effects?