Cost-cutting a test of managerial skills

PUBLISHED : Monday, 05 January, 2009, 12:00am
UPDATED : Monday, 05 January, 2009, 12:00am

By and large, there has been less joy for many this holiday season and more are bracing for the worst to come after the Lunar New Year, as we enter a widely expected difficult first quarter.

Given the economic conditions where there are only signs of deterioration and any recovery will not begin until late this year, there is a sense of resignation and more gloom to come.

Employees pray each day that they still have a job to go to as companies scour for ways to cut costs.

Human resources - as one of the largest single expenses for most companies - would make it high on the list of potential cost-cutting targets.

Whether in bad times or good, no cost-cutting is positive but its execution is a test of management skills and an indication of competence, according to experts.

That the cuts are commonly conveyed as justified if the company is to streamline is almost an overkill, but from a management standpoint such a rationalisation provides enough ambiguity for it to apply to varied interpretations and explanations.

Difficult times force companies to think harder about their operations. Ideally, the depth and breadth of any planned restructuring should be well thought out and aligned with corporate values and business strategies, according to experts.

This naturally includes pruning staff size and weeding out the bad apples.

As former General Electric chairman Jack Welch once said, it is crucial that businesses know how to 'send the jerks packing'.

He warned that companies must realise that jerks - those who deliver the numbers but not the values - hurt more than they help.

What about those who deliver neither?

Management consultants Hewitt Associates stresses that how companies reduce headcount has critical implications for their future. Decisions should be made based on maximising long-term values and, in such uncertain times, more so on a strong leadership with critical skills and vision, the consultancy says.

Top managers should realise that any retrenchment move not only communicates to those who lost their jobs and the broader market for the publicly listed firms, but also to the remaining staff, the very people who will help pull the company through the difficult times.

This is why engagement with staff - communication - is vital especially at times when anxiety levels are high, Hewitt says.

A report by McKinsey reminds firms that they must focus 'relentlessly' on the internal cultural and external reputation implications of cost-cutting efforts.

'Although strong employer brands are resilient, it's difficult to re-establish brand strength once the culture has been damaged.

'The way many companies conduct large-scale downsizing decreases efficiency, morale and motivation on the part of the remaining employees,' the report said.

McKinsey cited the approach Cisco Systems took in 2001 that won the latter plaudits as the company paid generous severance packages and assisted in job searches for laid-off staff, hence protecting its employer brand for those who left and those who remained.

However, the spectre of redundancy has returned to Hong Kong and the mainland after a number of boom years.

To buffer a wider blow on Hong Kong society, where unemployment is expected to reach 5 to 6 per cent this year, the Employers' Federation of Hong Kong last month appealed to companies to consider pay cuts, unpaid leave or shorter working weeks and avoid layoffs as much as possible. If unavoidable, the federation is urging firms to do it in one go.

The Hong Kong Institute of Human Resource Management concedes that while it is easier said than done, under the tough circumstances, an organisation's business performance will be strengthened with the right people and skills in place to prepare for an upturn in the economy.