How Cost-Saving Solutions Can Eliminate Layoffs

Cutting costs has become synonymous with cutting heads. Many companies use layoffs as a first way, or possibly the way, to cut costs. This is confirmed by the Bureau of Labor Statistics monthly mass layoff reporting being at an all-time high. Since the beginning of the recession, employers have cut 5.1 million jobs. Last month alone tallied at 663,000 eliminated positions. Challenger, Gray & Christmas recently announced survey results showing that 71 percent of companies polled had laid off some workers in this past year. That said, John Challenger, the firm’s CEO, claims that more companies are trying to find alternative solutions for cost cutting.

There are a couple of companies that stand out, at least for the time being, as counter culture to the norm of cutting heads to rein in costs. To these unconventional companies, layoffs are a last resort. These firms have realized that layoffs could cost them more in the long run. The short-term gain is not worth it. For instance, the financial savings from a layoff that includes severance pay could take up to 18 months to be realized. The intangible high costs of a layoff include: decreased morale and productivity, and the loss of expert and institutional knowledge. In addition there is the tangible cost to hire and train new employees once the economy picks up and a larger workforce is needed.

Costco Wholesale Corp. is a clear leader in this unconventional philosophy of looking for alternative solutions to keeping costs in check. While their revenues have dropped 27 percent since one year ago there haven’t been layoffs at Costco since the 1980’s. Costco recognizes the high cost that come with layoffs.

Southwest is another leader in this space. Similarly to Costco, back in the late-80’s, Southwest shut down a wholly owned subsidiary. That’s the last evidence of any involuntary layoffs we could find. They are proud to proclaim that they do not have involuntary layoffs. After the recent salary cuts by most major airlines Southwest now has some of the highest paid employees in the industry. Even so, they still tout the lowest operating cost per passenger flown because they are so efficiently run.

Toyota is worth taking a look at despite the fact that they may eventually reorganize and eliminate higher level management positions in their North American market. The NY Times article, “Toyota Said to Weigh Reorganizing U.S. Operations,” from April 9, 2009 stated: Even if Mr. Inaba were to reorganize, the move may not be as drastic as most American-style restructuring plans, said Jeffrey K. Liker, a professor of engineering at the University of Michigan and the author of several books on the company. He said Toyota laid off workers only as a last resort, relying instead on buyouts and voluntary retirement programs.

“If that was not the case, it would be a whole lot easier to just downsize like any other company,” Professor Liker said. “They have to be much more thoughtful and creative about how they use people, and right now they have a lot of extra people.”

The state of New York seems to be trying to do the right thing and avoid layoffs of the unionized public workers. They have asked that the contracts be re-opened for discussion and considerations such as holds on increases be considered. Errol Cockfield, spokesperson to Governor David Paterson, claims that the state’s largest union has rejected every offer put forward to prevent job losses among their ranks. It will be interesting to follow and see if they end up having to let people go after having their more creative ideas to maintain the population thwarted.

Companies who want to seek alternate ways to control cost and expense should weigh the pros and cons and determine what makes the most sense for their particular situation.

Method	Pro's	Con's
Operational & process improvement – Ask “why do we do it that way?”; Review contracts; Ask “is there a more efficient way?”	Everyone can be rallied to support this effort; it can be morale building; employee involvement acknowledges their expertise in their work; Usually people want to work more efficiently; Finding ways to save money may start coming out of the wood-work.	You have to be willing to communicate with your team(s), receive feedback, and implement appropriate suggestions
Win more business/Increase sales	This is a great solution if winning business offsets client loss or adds to revenue.	If this is combined with other solutions it could mean increased workload on an already stressed workforce.
Hiring Freeze	Stops future increases to payroll, benefits, and other ancillary expenses such as equipment and training, etc.	A freeze may limit productivity in an area currently under-resourced. It may also cause morale issues in those same under-resourced groups.
Pay Freeze	Maintains payroll expenses.	Could cause morale issues. Pay freezes are often perceived as a “take away” from what the employee feels they are entitled.

Coach Effect’s process and communications expert consultant and coach, Ian Blei, has been working with companies specifically to find efficiencies, save money, and refrain from layoffs. When asked what type of client profiles typically lead to great results, Ian stated, “My work with them has to be part of a strategy that strives to increase productivity and profitability.” One of Ian’s clients came to him when costs were getting out of control and revenues were not at the levels needed to keep supporting the run rate. They needed help, but they didn’t have the time or the expertise to take this on internally.

Ian started, as he usually does, by observing the client’s “natural state of working”. Ian “becomes” a piece a paper and moves around the office replicating the paper trail from start to finish as it makes its way through the organizational process. He can also “become” the customer calling into the company, the electronic paper trail, and various other operations and processes that make up the business. After just ninety minutes of observation at this one organization Ian reduced phone expenditures from roughly $12,500 monthly to $800 monthly. This one observation and recommendation created an annualized savings of approximately $140,400. This kind of savings could equate to saving three or more employees. Ian continued working with them in what amounted to roughly $8.5 million in savings. This supported the company in attaining their goals of increased productivity and profitability. Ancillary benefits to the project included increased morale, increased customer service ratings, decreased overtime expenses, and not a single layoff.

It is no easy task for any business to align expenses and current revenue projections. If your organization is in the tough place of reviewing options, consider alternative solutions before jumping to the cultural norm of a layoff.

If you need assistance in assessing the situation, weighing options, and finding efficiencies, contact us to set up a preliminary conversation and determine if we might be able to support your success.

Written by Jennifer Mounce, President, Coach Effect. Coach Effect is a coaching, consulting and development firm focused on engaging employees through leadership and organizational effectiveness. For more information, please contact us.