CISHRP 2009 conference: Cutting costs without cutting people

The dilemma for businesses at this current time is how to provide customers with extraordinary value in order to retain their business while simultaneously cutting costs to preserve the margin. Doug Soares, partner with Bermuda company Expertise, explored this dilemma at this year’s Cayman Islands Society for Human Resource Practitioners Annual conference, held earlier this year at the Marriott Beach Resort and entitled ‘If the bubble bursts…how will you manage and motivate your talent’. Business Editor Lindsey Turnbull was in attendance and reports.

Fear was a sentiment currently felt in the business world, stoked, not only by the global economic recession, but also by a number of elements threatening to change the status quo. Doug Soares quoted a list of possible causes for concern, namely the election in the US late last year (not to mention Cayman’s own in May of this year), US President Obama threatening to shut down tax havens, the G20 meeting earlier this year calling for the same intent, all this quite apart from the world being on the verge of an influenza pandemic.

Denial of the issues currently facing us was also a dangerous game to play. Soares said that he spoke with as many business people in Cayman as he could before the conference and they almost unanimously said that business was fine when questioned by him, until one individual had the courage to say that they were, most probably, lying.

“The recession cannot but have an economic impact on the economy of the Cayman Islands,” Soares said. “Burying your head in the sand is not an option.”

Fearful people act fullish

Pushing costs down while squeezing the most out of employees is a hard game to play. “We risk becoming impaled on the horns of a dilemma,” Soares said. “We must provide greater value yet cut costs at the same time. It’s a very tricky time for business as a whole.”

Impacting people’s ability to make clear and rational decisions at this time was that most intense of human emotions: fear.

Soares said: “Fearful people are making decisions about people’s lives and they tend to therefore act fullish [a Bermudan term meaning foolish],” Soares explained.

Knee jerk reactions from management such as salary freezes did not indicate a positive way forward, according to the expert.

“Especially if an organisation does not implement any incentive for those who work harder than others,” he added. “Those who go above and beyond who receive the same attitude to their salary as those who do not is massively demoralising. Salary freezes should be selective,” he said.

Hiring freezes, commonplace during a recession, were, according to Soares, based upon the assumption that the work left by those who leave the workforce will be undertaken by existing staff.

“Cross-training and flexibility are required in these instances,” Soares explained. Management needs to think carefully before across the board edicts are made.”

Training itself is usually one of the first aspects of business to suffer in a recession.

“Stricken from the budget, training is too often a casualty in cash strapped times. But does that indicate that it was unnecessary before the recession? Management needs to think about such wisdom before issuing general edicts,” he explained.

Cutting costs; increasing output

Bermuda and Cayman are service-based economies, selling our expertise rather than any particular goods. As such, Soares said that the only way to reduce costs and increase output was via employees.

He said: “The effectiveness of human productivity needs to be increased. And you can be assured that if the Cayman Islands doesn’t increase productivity, then Bermuda will!”
Cutting costs is a huge dilemma for individuals and a massive leadership challenge, according to Soares.

He furthered: “HR personnel are the lynchpin in leadership during tough economic times. People need help in gaining a good perspective on the issue so they don’t become “fullish”!”
Issuing clear and realistic aims is a pre-requisite for any management, Soares said.

Managers must be realistic and not sugar-coat issues to their staff. They need to reassure staff that redundancy will only be contemplated by management as a last resort,” he added.

Performance management

The first step up the cost cutting ladder before redundancy should be entertained was to start focusing on performance management. Soares said: “Managers across the board (senior executives to supervisors) need to be updated on measures implemented that will measure and manage performance of all staff to assess how well an individual is doing in his or her job against the standard; the consequences of not meeting or exceeding the standard need to be clearly set out.”

The challenge in tough economic times was not to make the most unproductive staff redundant, Soares said, as severance pay could cost the company dearly, especially when that employee was not even giving full value in the first place.

“You can have a system which basically says to an employee that they need to be productive or they may lose their job,” he commented.

Reduce non-personnel costs

The second way to reduce costs was to focus on costs that do not directly relate to personnel.

“Hiving off large chunks of costs makes businesses focus better,” Soares said. “Focussing on office space, office equipment and ways in which these costs can be reduced is an early cost cutting exercise before redundancy should be considered and should be intrinsic to a business anyway.”

Reduce spending on socials

Soares pointed out that this section did not read ‘Eliminate spending on socials altogether’ as he said this was a vital way for companies to engender a happy and co-operative workforce.  Never-the-less, he suggested diverting socials to the workplace environment itself, rather than to costly locations outside the company.

“Socials engender mutual respect and trust and should not be ruled out completely. Eliminating them sends the wrong message to staff – that the company just doesn’t care. But they can be refocused,” he explained.

Reduce hours and unpaid time off

This can be an effective cost-cutting device if carried out properly, according to Soares.  Citing an example of Bermudan architects who dramatically cut down their hours to reduce costs, Soares said that this was a good way to approach the issue, as well as offering staff unpaid time off, which gives them the chance to perhaps travel abroad. However, Soares noted a word of caution here and said that policies might need to be amended so that staff and management can explore this opportunity.

“You cannot go tinkering with employment contracts and reducing hours and pay without discussing it with the employee first!” he said.

Soares finished his presentation by saying that HR professionals play a key role in the decision-making process in tough economic times, building employee engagement, giving reassurance that the organisation is well-managed and well-run, and ensuring that staff appreciate that redundancy is a last resort.