Involve Your Employees in Cost Cutting

By Nov 1, 2003

HR Magazine, November 2003




Your workers may have effective cost-cutting ideas - but bringing them to the surface requires solid employee communication and engagement skills.

After taking office last January, Wisconsin Gov. Jim Doyle embarked on a massive budget-cutting initiative. Now local governments and agencies throughout the state are feeling the pinch as public officials and civic leaders search for ways to cut costs. But their efforts are being challenged and criticized, not only by the public, but also by public-sector employees.

In one television interview, a city worker lamented: "They need to ask us for our opinions -- the leades are too far away from what's really going on. They're not making the best decisions."

Thats a refrain many businesses are likely to hear as they struggle to reduce expenses and ride out the current economic slowdown.

But it doesnt have to be this way. By involving employees correctly in the cost-cutting process, employers can gain workers buy-in and reduce or even eliminate backlash to such decisions. And, perhaps more importantly, managers may gain valuable cost-saving tips they might never have developed on their own.

Employees might see opportunities that you might never see because theyre on the front line, says educator and businesswoman Theresa M. Welbourne. She is the founder of eePulse Inc., an Ann Arbor, Mich., market research firm that uses e-technology in its processes, and she is an adjunct professor of organizational behavior and human resource management at the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan Business School. If you could get the information that employees had about your business into the hands of your management team, they would make better decisions, says Welbourne, who has conducted research into how employees can drive corporate performance.

Elizabeth Gibson, an organizational consultant and co-author of Big Change at Best Buy (Davies-Black Publishing, 2003), says, Employees, absolutely, should be involved in any cost-cutting initiative for it to succeed. They are close to the action, and they see the immediate impacts.

However, while employers stand to gain by asking for employees input, such efforts could backfire if expectations are not communicated clearly. Employees who believe their input was ignored or not dealt with in a timely manner are likely to feel discouraged, and morale may suffer.

Here, then, are tips and suggestions to help you pull off this delicate balancing act.

Credibility Is Key

When employees are encouraged to take part in a cost-cutting initiative, experts say, it puts the credibility of the organization and its leaders and managers on the line.

If people are reading in the newspaper about the success of your company, and then you say, Were looking to save costs, its not going to work, says Ed Steinberg, SPHR, vice president of HR for Synygy Inc., a Conshohocken, Pa., company that offers incentive compensation and performance management software. You cant tell employees that everythings OK but we need your help, Steinberg says. Employees today are very well informed, and they see whats happening in other companies and in the economy.

Sending such potentially conflicting messages could have been a problem for Synygy, which has posted profitable growth for the past 45 consecutive quarters. However, the company has implemented a cost-cutting strategy that meshes with its profitable statusand that any company could use: It has embedded continual cost cutting in its corporate culture. Looking all the time for ways to improve the bottom line is just something we do, says Steinberg.

And the approach worked to the firms advantage recently when it was looking to save costs for opportunities to invest more into the organization, says Steinberg. In a volatile economy we didnt want to go to the equity markets or rely on outside funding.

Synygys culture made this message credible for its more than 400 employees. And credibility, says Steinberg, is not a key pointits the point. If its not a credible message, youre wasting your time.

Employers that attempt to provide false reassurances to employees about the companys financial health while simultaneously asking for their help in cost cutting will do more harm than good, says Ben Dattner, an organizational psychologist and adjunct professor at New York University.

Company spokespersons, he says, need to separate facts from reassurance. Management can try to reassure employees and communicate optimism but shouldnt do so by misrepresenting facts.

Credibility extends beyond words, of course. Executives can send the wrong messages not only by what they say but also by what they do. For example, consultant John Reddish, founder and president of Advent Management International in Chadds Ford, Pa., once worked with a company that had not given its employees raises or cost of living increases in nearly two years. One day, the second-ranking person in the firmwho also happened to be the owners sondrove to work in a new Ferrari.

When I arrived at the plant, says Reddish, everyone was in a foul mood. Noticing this, I asked one of the friendlier workers, Why so glum? He told me about the car.

Reddish investigated and learned that the expensive Italian sports car had been borrowed from the proprietor of a garage where the son had taken his own car for repair.

We decided to announce that he had been lucky enough to borrow the car for the day and that it would be open to sit in and inspect at lunch time, says Reddish. Lots of employees came to explore, and some even had their pictures taken at the wheel. The mood went from ugly to workable. The executive learned a valuable lesson that day, because it had never crossed his mind that he might be creating a problem.

When and How to Engage Employees

Timing can be everything, and waiting to involve employees can be a mistake, says Laura Bryniarski, a communication consultant with Watson Wyatt Worldwide in Dallas. Let employees in on the need to cut costs at an early stage, she advises.

I think once you do a certain amount of due diligence and have an idea of what the scope of cost cutting will be, you need to start preparing employees for future changes, she says. Employers dont need to know what the specific measures are yet, but if they can start gearing employees up for whats coming down the pipe, they can begin inviting feedback.

Of course, inviting feedback is one thing, and actually getting it is another. For employees to give you their best cost-cutting ideas, they must care about the organization and its future, recognize their role in positively affecting that future, and believe that their input will be heard and valued.

Gibson recommends focusing on the following three elements when involving employees in cost-cutting measures:

Explain why cost cutting is necessary. You need to translate the business case for cost cutting into terms that are meaningful to all employees, Gibson says. And that may require different translations for different functions or groups or levels within the organization.

Jim Bolton, CEO of Ridge Associates, a communication consulting firm in Cazenovia, N.Y., says that most managers fail to take their employees frames of reference into account when thinking about what and how they communicate.

Usually, he says, management communication is a party-line broadcastthe same information is sent to all constituents. Rarely do managers adequately distinguish how different groups will react and respond to that message.

Yet all communication is ultimately local, Bolton says. Employees in field offices will react differently to an announcement of layoffs at headquarters than the people at headquarters. Theyll still be affected and concerned, but not in the same way.

Tell employees whats in it for them. Be explicit about the answer, says Gibson, and find out whats meaningful to different individuals.

Giving employees a share in the profits can be an excellent way of showing them how they stand to gain by cutting costs and increasing revenue, says Linda Haneborg, senior vice president of marketing/communications for Express Personnel Services in Oklahoma City. Our experience at Express over the last several years is that when employees see a quarterly swing in the wrong direction, its a strong incentive to pay attention to what we need to do to move in the right direction.

To further show employees how they can benefit from providing cost-cutting tips, be sure to hold up successful examples for all to see. When an employee comes up with an idea thats implemented, says Gibson, make them a herocelebrate them.

Jim Mooney, senior vice president of Farr Associates, a leadership and organizational development firm in High Point, N.C., offers similar advice: Reward visibly every success story.

Explain what ideal comments look like. Provide examples of good comments, showing the types of information they include.

Says Gibson: Be prepared to describe, discuss and dissect any propositions that people bring youand be able to provide your own specific examples, because theyre likely to not be able to generalize to their own situation.

You also should be prepared to discuss with employees how their ideas fall short. Not every idea you receive is going to work, says Steinberg, but failing to respond to unworkable ones is a big mistake. An idea that misses the mark represents an opportunity to build understanding.

Unless you just want to increase effort, I dont think theres a benefit in the thanks anyway approach, says Steinberg. Employees can only make improvements if they understand why this idea doesnt work so they can adjust that idea and fit it into something that will work.

Part of helping employees to understand what ideas you are looking for may involve educating them about the business.

For example, Haneborg says it is important to educate staff members so they clearly understand what profit means for the company. So often, companies concentrate on top-line sales without explaining to employees how much is involved in overhead, salaries and fixed costs. Oftentimes, employees do not have a clue, and all they see is that top-line number.

Haneborg says employees often encourage management to hire more people because they feel overworked or that they need more help. But if they realized how these new hires impacted the bottom lineand their profit sharingthey might be more inclined to find a better way of doing something to eliminate some of the work to make the company run more efficiently.

Framing the Issue

Mooney suggests that employers lay out a challenge to their workers. Tell employees, We need to learn how to succeed with the resources we now have. Encourage people to look at processes, functions, interfaces theyve been using for years and find ways to do them better and faster.

Steinberg takes a similar view. He believes its important to set realistic expectations of employees. Dont ask for ideas about saving on the cost of construction if thats not their area of expertise, he says. Link the expected activities from the employee to areas where they really can make an impact.

But Express Personnels Haneborg took a different tack when she needed to implement cost-containing measures to compensate for projects that had put her department over budget. She asked staff members to e-mail their supervisors with two or three cost-containing ideas that could be implemented immediately. Solutions did not have to be limited to the employees own area.

This approach, Haneborg felt, allowed employees to own the cost-cutting objectives rather than view cost-cutting as an issue for upper-level management only. We came up with some great suggestions, Haneborg says, and even from among the newest employees who knew​ the least.

Be Prepared for Dissension

Regardless of your best intentions and your careful attention to communicating with and involving employees in your cost-cutting efforts, you are bound to ruffle a few feathersespecially in todays business climate.

I think companies need to be especially careful right now because theres such a high level of employee cynicism, and I think it stems from distrust of senior management and their own personal fears about the economy and how it has affected them financially, says Bryniarski.

She adds that companies have to be prepared, in spite of their best efforts, for critical and cynical feedbackand prepared to somehow channel that feedback productively.

Mooney suggests that companies actively seek feedbackeven negative feedback. Provide a venting and morale-restoring forum for people who want to take advantage of it, he suggests. Many companies use their EAP resource for this. Other companies do climate assessments. Regularly take the pulse by talking to people.

Listening to employees also can help. But managers dont like to listen during tough times, says Bolton, because what theyre listening to is complaints, frustration and other negative issues that they often cant do anything about. But skillful listening helps relieve frustration and enables employees to be more productive. It also builds employees loyalty over time and provides managers with important informationabout problems they hadnt anticipated and hidden opportunities.

The bottom line is to value employees, says Welbourne. If you value people and show them you value them, theyll share information with you.

This, she says, is supported by study after study that I conducted while I was at Cornell. The one thing that predicted performance was the human factorthe degree to which companies valued their people.

When you get it right and employees start giving you information, Welbourne says, youll have teamwork, managers making better decisions and people that are more engaged. The net result is better long-term performance.

Lin Grensing-Pophal, SPHR, is a Wisconsin-based business journalist with HR consulting experience in employee communication, training and management issues. She is the author of Human Resource Essentials: Your Guide to Starting and Running the HR Function (SHRM, 2002).

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