With the New Year upon us, and the future prospects of the economy still in flux, many small businesses might be taking a fresh look at how they can shave costs and, hopefully, boost profits for 2012. But cost cutting, especially when it impacts the payroll, can often have negative side effects, as well—especially on employee morale. That means that while you might succeed in adding a few dollars to the bottom line, you might actually suffer a net loss in the productivity of your employees. Given that challenge, here are six strategies to consider in pulling off a cost-cutting effort without cutting morale at the same time.
1. Communicate thoroughly. “I had to make some cuts later last year, and it wasn't easy,” says Kelly Reeves, owner and CEO of KLR Communications, a public relations firm in Newport Beach, Calif. “It's important to communicate everything with employees: what's happening, what are the plans to resolve the matter, how long it'll take and what they can expect.” In other words, employees will respond better to bad news when they’re given as much information as possible as to why the cuts are taking place. “Communication is all about framing the purpose,” says AmyK Hutchens, CEO of AmyK International, an executive development firm specializing in leadership and sales. “Are you cutting to survive and make payroll or are you cutting to create lean efficiencies that will position your company to stabilize and eventually thrive again? Word choice is very important so that people can buy into a positive future.”
2. Be transparent. It’s all too common for employees to assume the worst of their boss or the owner of the company, usually along the lines that he or she is cutting costs to line their own pockets. But if the company’s future is truly at stake, being as transparent as possible can actually result in greater loyalty. “Business owners must demonstrate foolproof integrity and do the right things for the right reasons and be totally transparent,” says Roy Saunderson, president of the Recognition Management Institute, a division of Rideau. “If it means opening the accounting books to show the reality of why cuts are needed, so be it. You can’t ask for restraints without being fully open with employees.”
3. Ask for ideas. When it comes down to finding ways to cut costs, sometimes business owners overlook their most valuable assets: their own employees. “Resources are wasted everyday in businesses, on systems and products that are simply not working and having a negative impact on the bottom line,” says Marla R. Gottschalk, Ph.D., a practice manager with organizational development firm Rand Gottschalk & Associates in Lansing, Mich. “Employees have first-hand knowledge and can alert business owners to these areas of waste.” In other words, by asking your employees for ideas on how to cut costs, you might actually be able to boost morale in the process. Gottschalk admits that it can take some planning to create a channel where employee ideas on cutting costs can be brought up, but when it’s done well, great rewards follow. “I usually suggest a monthly idea forum for small businesses, whereby submitted ideas can be presented and evaluated. Owners can also post specific problems for employees to solve, such as a cost cutting challenge.”
4. Lay people on, not off. Many companies rely on lay-offs to trim payroll costs. But what if you turn the equation around? Case in point: “A publishing company which went through a tough spell during the recent recession risked laying people off,” says Saunderson of the Recognition Management Institute. “Instead, the owner asked if all employees would be willing to work an extra hour a day. Employees could see the dilemma and accepted the challenge. After the first three months they cleared the downturn and after six months showed a 15 percent increase in productivity. Similarly, Jeff Milano, CEO of The People's Chemist, says that the best way to offset payroll cuts is to then offer a bonus program, based on profit sharing. “If everyone works together and a goal is reached, then everyone shares in the reward,” says Milano. “This keeps the doors open and the cooperation high.”
5. Celebrate small successes. “Even the little things count,” says Reeves of KLR Communications. “Praise and recognition for a job well done are crucial if you’re going through a restructuring. Giving little gifts like $5 Starbucks cards or iTunes gift cards can also make them feel like they're a valuable asset to the company even if compensations have been cut or they've seen their co-workers laid-off.”
6. Recognize sacrifices. Even when the cash registers are dry, employers should make the effort to recognize the efforts of those employees who continue to keep the firm going, says Saunderson of the Recognition Management Institute. “What employees won’t forget is how managers treated them during the tough times. That means you should be increasing the amount of time spent one-on-one with employees, writing appreciation notes, listening to concerns and thanking them over and over again for saving the day.”
Photo credit: iStock