With current inflation, how the actions of HR to carry out cost-cutting and optimization in organizations
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Figure 1: Cost cutting
As the demand for high-value services rises along with the need to increase efficiency, cost optimization continues to rank highly on HR's priority list. Ad hoc cost-cutting measures typically require HR professionals to adapt, which might have unintended consequences. Although departments are under pressure to cut costs, it's critical to avoid reflexive action. Because how you manage cost decisions today will affect performance sustainability in the future, a strategic perspective must take precedence over ad hoc urgency. To optimize cost savings, HR should pursue cost optimization through enterprise-wide and function-specific programs. Cost optimization is an ongoing, business-focused discipline that aims to maximize organizational value while reducing costs. While the financial benefit is certainly important, other factors such as the impact on operations and employee experience must also be considered. Investing in the organization's staff pays off and is the right thing to do. Fair compensation, good benefits, an open-door policy, and a positive work environment are things that HR can help the organization achieve. This is why businesses should consider the impact of cost-cutting tactics on employees as a hidden cost (Vaidya, 2021).
Figure 2: 3 Best ways to minimize cost
HR cost reduction strategies for economic downturns
When an economic downturn occurs, they can be forced to use previously unheard-of cost-cutting strategies, making it even more difficult to recruit and retain top talent. Ad hoc or poorly planned efforts, however, might result in unsustainable savings and even hinder corporate growth. Discretionary expenditures include one-time expenditures and projects that add long-term capabilities but are not essential to the day-to-day HR operations of the enterprise. These are often presented as the easy option to cut in tough economic environments (Iqbal, 2021). During economic downturns, businesses often face the challenge of reducing costs while maintaining operational efficiency. Human resources (HR) departments play a crucial role in implementing cost-reduction strategies. Here are some HR cost-reduction strategies for economic downturns:
1. Workforce Planning and Optimization:
• Conduct a comprehensive workforce analysis to identify essential and non-essential roles.
• Prioritize critical roles that directly contribute to the company's core functions.
• Consider temporary layoffs, furloughs, or reduced work hours for non-essential staff during downturns.
• Implement a hiring freeze to avoid adding unnecessary costs.
2. Voluntary Redundancy and Early Retirement:
• Offer voluntary redundancy or early retirement packages to eligible employees.
• This can help reduce the workforce without resorting to layoffs, which may impact employee morale.
3. Flexible Work Arrangements:
• Implement flexible work arrangements, such as telecommuting or compressed workweeks.
• This can reduce office space and utility costs, leading to substantial savings.
4. Benefit Cost Optimization:
• Reevaluate employee benefits packages to identify areas where costs can be reduced without significantly impacting employee satisfaction.
• Consider negotiating with benefit providers for better rates.
5. Training and Development Efficiency:
• Temporarily reduce or postpone non-critical employee training and development programs.
• Focus on essential training that directly enhances productivity and performance (Heywood, et al., 2009).
Types of cost savings
• Substitution
Substitution requires finding cheaper alternatives to the products or services a company needs to operate. Choosing free or low-cost substitutes can help an organization reduce its operating costs and improve cash on hand.
• Combination
Combination as a cost-saving measure involves combining two or more business functions or
expenses to reduce costs.
• Adaptation
Adapting to industry realities or specific situations can reduce business costs. Another form of adaptation is changing the employment structure, such as using freelancers or contractors instead of hiring permanent staff.
• Modification
A company can change its operations to reduce costs. Reducing physical locations, changing employee compensation structures, and making other changes can reduce overhead.
• Reallocation
Reallocation of resources can also act as a mechanism to reduce business costs. Old equipment can also be repurposed or upgraded for other uses, allowing the business to avoid investing in new infrastructure. Businesses can reallocate furniture, electronics, and human resources to meet cost-saving goals (Begham, 2019).
Conclusion
It's important to note that while cost-cutting measures are sometimes necessary, organizations should strive to balance financial stability with maintaining a positive work culture and supporting their employees. HR plays a vital role in managing this delicate balance during times of inflation or economic challenges.
References
Begham, E., 2019. Cost saving strategies, s.l.: Indeed.
Heywood, S., Layton, D. & Penttinen, R., 2009. A better way to cut costs. McKinsey Quarterly, 2(1), p. 24.
Iqbal, S., 2021. Best HR cost-cutting strategies for small businesses, s.l.: Finance SME.
Vaidya, D., 2021. Cost Cutting. Cost Cutting, 1(1), p. 8.
Yes, this is a critical role for HR because when we talk about terminating an employee, it becomes a personal empathy issue. However, you mention well to focus on some strategic points such as role description, early retirement, flexible working arrangements, and so on, so that we can balance both parties.
An often overlooked aspect, providing regular employee training and mentoring can help HR reduce costs in a two-fold manner – one, by increasing productivity, and second, by reducing employee turnover
It is clear from your post how HR practitioners can support organisations in their cost reduction efforts in multiple ways instead of heading right for layoffs.
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Yes, this is a critical role for HR because when we talk about terminating an employee, it becomes a personal empathy issue. However, you mention well to focus on some strategic points such as role description, early retirement, flexible working arrangements, and so on, so that we can balance both parties.
ReplyDeleteAn often overlooked aspect, providing regular employee training and mentoring can help HR reduce costs in a two-fold manner – one, by increasing productivity, and second, by reducing employee turnover
ReplyDeleteIt is clear from your post how HR practitioners can support organisations in their cost reduction efforts in multiple ways instead of heading right for layoffs.
ReplyDelete