- October 30, 2019
- Posted by: David Marshall
- Category: Business, Management
When you see that an economic downturn is on the horizon, just like the one we’re seeing now, the knee-jerk temptation for many managers is to start making layoffs and staffing cutbacks.
“We need to reduce expenses by 10 percent, so let’s just cut 10 percent of the workforce.”
That works in the short run, and it’s certainly easy, but it’s not the best for the company’s long-term survival.
For one thing, it doesn’t improve the operation’s efficiency. If anything, the manufacturing becomes less efficient and it continues to underperform, underproduce, and under-deliver, which means you have to make further cuts as your revenue continues to decline.
So why not just cut everyone’s hours across the board?
But that only works for a short while.
You’re going to run into a serious morale problem, as people become disillusioned and feel like they’re being taken advantage of, or feel like they’re working just as hard but for less money. That’s going to cause a productivity problem, and you’re going to continue to lose money, which brings you back to the same problem you had earlier. You won’t want to cut everyone’s salaries again, which means you’ll probably have to do layoffs, which is probably what you should have done in the first place.
So cutting people’s hours is not really an option.
There’s always the Machiavellian method, which just means raising everyone’s performance standards and cutting the ones who can’t keep up. But that’s a cheap trick, and your associates will see right through it. And you’ll end up with a worse morale problem than if you had cut everyone’s hours instead, because the remaining associates are working harder for the same amount of money.
Prepare for the downturn before the downturn starts
The best step to take in preparing for the downturn is to increase your productivity and do it with the same number of people you currently have. There are three ways to do this:
- Use natural attrition and early retirements to reduce your workforce. If someone retires or quits, don’t replace them. Encourage others to retire early with bonuses or a generous severance package. You won’t have as large a workforce, but you can use natural attrition to soften the blow.
- Automate as much of your production as you can. If you can increase or maintain your productivity in fewer hours or without overtime, you can maintain your revenue levels while reducing your operational costs. Let’s say you have a 20-person invoicing department, and each person handles 1,000 invoices per month. But your sales drop and each person is only handling 800 invoices per month, which means cutting a few people. If you automate early on, and reduced the department to just two people handling those invoices, you can reassign the other people to new jobs within the company while you still have the time and resources to do so.
- Start measuring all your processes to find out where your inefficiencies lie. You may discover that you’re losing a lot of money on an inefficient process or even a faulty machine that produces a lot of rejected parts. By identifying these, you can make the necessary changes and then more easily absorb the downturn because you’ve already eliminated the waste that might have otherwise gone unnoticed.
Also, ask your associates for a way to cut costs. They probably have some good insights that you’re just not seeing. As much as you’d like to be, managers just don’t have the same in-depth expertise that the people who are actually doing the job have.
Explore how to make these ideas work. Let the associates manage those processes and have them take ownership. They’ll not only feel more appreciated and listened to, but they’ll work harder to make sure their ideas work, which may also get more buy-in from the rest of the staff.
As an added bonus, this is a good way to find those people who can innovate and find new ways of thinking: those are the people you want to have running your organization and helping you find new opportunities for growth.
I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business. If you would like more information, please visit my website and connect with me on Twitter, Facebook, or LinkedIn.
Photo credit: Jarmoluk (Pixabay.com, Creative Commons 0)