&“Doing more with less” sounds like a wise, if unwanted, business policy these days—right up until reckless cost-cutting alienates employees and weakens carefully crafted segregation of duties.
In a prolonged recession, companies “want to make more thoughtful and strategic decisions to respond to these ongoing pressures,” Nik Shah, a partner with PricewaterhouseCoopers, said during a recent Webcast exploring the risks of cost-cutting plans. “We believe that doing more with less is the new normal.”
Shah
The core problem is that while many companies are cutting jobs or imposing hiring freezes, they’re not eliminating the work. As a result, Shah said, companies are “penalizing” their most pivotal employees—the ones most important to creating and preserving wealth, and the ones companies most need during difficult times. To execute cutbacks more deliberately, PwC recommends companies begin with an assessment of the following questions:
How can effectiveness and efficiency of workforce be improved?
What should be outsourced, instead of done internally?
What staffing mix of permanent and part-time labor will allow the greatest level of flexibility while reducing cost?
What should be automated instead of performed manually?
PwC has dubbed such assessments an “X-ray analysis”—a methodology that provides an objective analysis of an organization’s general and administrative processes (human resources, IT, finance, and so forth) and labor costs based on actual time spent on specific processes by role.
Ideally, that study should yield a detailed map of where employees devote their time, and where fragmented processes exist, Shah said. That will let executives see whether roles and responsibilities are assigned appropriately, and how they could be consolidated with minimal disruption to the employees who remain. It should also help executives understand staffing levels overall, IT infrastructure requirements, and cost-saving options.
Youden
“The ability to get the right people at the right place at the right time has never been so important for organizations,” said Diane Youden, a principal with PwC, who also spoke during the Webcast.
Making operational changes also requires an understanding of short- and long-term business needs. Shah likened the distinction to the difference between going on a diet versus a “lifestyle change” to be more healthy; an effective review of cost cutting should be able to determine whether the cutbacks are the former or the latter.
LABOR PAINS
Industry Data From PwC’s 2009/2010 Human Capital Report
—Labor Cost: Single largest expense item for most industries
—How is Labor Cost (as a % of Op Ex & Revenue) trending in your organization?
Metric
All Industry
Banking
Hospitals
Insurance
Manufacturing
Professional Services
Utilities
*Labor Cost Expense Percent
32.2%
27.8%
49.3%
9.2%
27.3%
52.9%
15.0%
Labor Cost Revenue Percent
22.1%
21.5%
45.5%
9.2%
22.8%
43.4%
13.3%
**Management Span of Control
7.2
5.3
16.3
6.6
7.6
9.3
6.8
Results above represent median benchmark results from PwC Saratoga’s 2009/2010 US Human Capital Effectiveness Report which represents data submissions from more than 300 organizations.
*Labor costs include base, overtime pay, performance, bonus, commissions, payments for time not worked,
severance pay, legally required payments, retirement and savings plan payments, life insurance and death
benefit payments, healthcare benefit payments.
**Management includes all Manager and above level employees
PricewaterhouseCoopers Webcast on Cost Cutting (2009)
Youden raised another point companies should consider: As the economy recovers, will the cost-reduction programs benefit the company’s long-term business interests? Some companies do enact cutbacks that are meant only as temporary measures to be reversed later, she said. But the “most thoughtful” companies try to consider the long-term effect cutbacks have on their brand and culture.
An X-ray analysis also creates opportunities to leverage technology more wisely. IT investments often aren’t cheap, so they have “taken a back seat up until now,” Youden said. But, she argued, more and more companies today recognize that when they’ve made cuts to the workforce or modified operations somehow, “they really need to start to look at alternative methods to start to drive the efficiencies they are looking for.” In addition, today’s market gives them more flexibility and clout with IT vendors when trying to achieve their goals.
Customer surveys are another useful tool to help see where the allocation of resources can be improved. Customer value surveys offer numerous benefits, including:
Letting general and administrative functions understand their stakeholders’ agenda and priorities;
Highlighting what is perceived as “working” by customers, and what isn’t;
Acting as a feedback loop for functional policy or process changes;
Revealing internal customers’ perceptions of the functional area;
Demonstrating that the company is open and listens to customers;
Helping to prioritize areas for cost reduction.
The goal, Shah said, is to assess what your stakeholder and customer bases want. “Are we delivering good services, products that people want to purchase?” he queried. “Are we providing services that people expect and anticipate? How are we doing against that?” In most corporations, he said, there is a “significant gap between what (general and administrative) functions are doing, and what the stakeholder base and customer base really want them to be doing.”
The point of the analysis isn’t necessarily to fill the gaps, but rather to understand what improvements can be made to particular areas, Shah added. “The idea here is to enhance what you’re doing, but to make trade-offs.”
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