How to cut costs in a recession – with help from employees

Abstract

A s companies facing the current economic downturn launch cost reduction initiatives, many will ignore the need to secure employee commitment when making cost cuts, which is one of the reasons why only 10 percent of companies sustain cost reductions after three years[1]. Specifically, it is critical that companies planning cost reduction initiatives obtain both the positive emotional support of their employees and their commitment to behavior change that reduces costs. A workforce that is actively involved in the initiative and understands the need to make tough decisions can reduce costs more and sustain the reductions longer.

Are the HR responses of small firms different from large firms in times of recession?

“…To extract a pure size effect related to our hypotheses developed above, we follow the work by Tsai et al (2007) and thus, control for HR management formality in our specification. The literature, however, shows that small firms adopt limited HRM strategies to withhold the uncertainties associated with the economic shock (see, for example, Bidya, 2009;Mohrman and Worley, 2009;Katzenbach and Bromfield, 2009). Wickramasinghe and Perera (2012) suggest that firms with formalised work practices and procedures have more structured systems and processes in managing its personnel than those with low HRM formality and professionalism when facing the economic shock.…”

HRM practices during the global recession (2008‐2010)

“…Therefore, organisational restructuring should ensure that the right talent is applied to the right tasks as employees carry out work (Mohrman and Worley, 2009). In this regard, the literature identifies the importance of a performance management system which involves employees in setting targets, provides feedback and helps to improve employees' comfort levels, and adheres them to a timetable during recession (Bidya, 2009;Katzenbach and Bromfield, 2009;Stern, 2009). Mohrman and Worley (2009) suggest that firms could involve managers and employees to work together to set, test, and reset goals and targets drawing clear boundaries about resources and decision rights during recession while Lieber (2009b) suggests that firms could enlist employees in solving core challenges and pinpointing opportunities during recession.…”

“…In this regard, Katzenbach and Bromfield (2009) suggest that although firms initiate rewards reduction strategies solely on a financial business case, they need to develop an emotionally appealing theme as well. That is, firms should gain the positive emotional support of employees and secure their commitment to behaviour change that reduces costs (Katzenbach and Bromfield, 2009). Further, Lewis (2009) states that in recession rewards such as promotions are scarce.…”

“…The literature identifies HRM practices that are frequently adopted during recession as the communication of information, performance management, and cost reduction strategies such as pay cuts, freeze in new hires, reduction in training budgets, and lay offs (e.g. Bidya, 2009; Lieber, 2009b; Katzenbach and Bromfield, 2009; Mohrman and Worley, 2009; Stern, 2009).…”

“…For instance, it is evident that firms facing economic recession launch cost reduction initiatives such as pay cuts and freeze in new hires. Yet, the literature suggests that many firms are not successful in implementing cost reduction strategies as they ignored the importance of obtaining positive emotional support of their employees for cost reduction initiatives and their commitment to behaviour change that reduces costs (Katzenbach and Bromfield, 2009). This suggests the importance of effectively managing employees' beliefs and attitudes through recession (Bidya, 2009, Brundage and Koziel, 2010; Giancola, 2009; Mohrman and Worley, 2009).…”