Involving Employees in Cost-Cutting Decisions

From company image to lost business opportunities and damaged corporate culture, not getting employee input on where to reduce expenses can be catastrophic.

Cutting expenses is usually unpleasant, but not including employees in the decision-making process can make the situation even worse. After all, employees are the ones ultimately responsible for implementing those cost-cutting initiatives in most cases.

Patrick Daoust and Paul Simon offer advice to companies in working with employees to limit expenses in Harvard Business Review. In redesigning a company to reduce expenses, Daoust and Simon recommend asking each head of a business unit “to create a list of 20 to 30 routines and projects that are fundamentally important to the company.” Then, the company can assess potential redundancies or projects of lesser importance that can be eliminated.

Business heads and employees also can share the effort required for each of the essential routines and projects identified, noting which require support and which can be done with little manpower, the authors note.

Be Careful What You Cut

In my own experience, the biggest problems arise when a business unit is asked to cut expenses by limiting or eliminating routines, projects, or outside help that has been essential to business success and employee well-being.

For example, without consulting a business unit, executives might see that a freelancer is used to create and send a newsletter each week. The publication may have a full-time staff of three people, so the executives assume one of them can take on responsibility for the newsletter. What they wouldn’t know without asking is how time-consuming the creation of that newsletter is, and what goes into its dissemination. The freelancer may have been tapped not only to create the newsletter, but also to interact with readers who send in comments, to post the content on social media, and then respond to readers who react to those posts. That’s a lot of additional work for three employees who already are at full capacity dealing with a workload they complete in a nine-hour workday.

More Than a Destination

Travel is another area where companies often look to cut costs. They may see that a whole business unit travels to a few conferences per year that incur expenses for airfare, hotels, and meals. It looks at first glance like a good place to say, “No.” However, a conversation with business unit heads can reveal the valuable sales leads and entrepreneurial value of the industry events. Those meetings may be where employees get many ideas for new products and services and find great vendors to work with them to bring those new products and services to market.

Long-distance meetings also may be important to participate in to send the right message to the company’s current and prospective customers. What does it say if you don’t have a presence at the event? An executive who is not as familiar with the business unit as its head might not realize how important that meeting is to that particular industry sector.

Getting the DQ on HQ Locations

Similarly, it may seem like an easy decision to move a company’s headquarters from an expensive city such as New York City to a bordering state such as New Jersey. On paper it looks good, but what message does that send to business partners and customers? Will they assume your company is in financial trouble because it moved into a much less expensive and (by most accounts) less desirable location?

A move of headquarters to outside the city also can wreak havoc on company culture. Many employees love to work remotely on a flexible schedule. When you move from a city center to an area an hour or more away, you force many employees to telecommute full-time instead of going into the office two to three days per week.

A better approach may be to poll employees to see who would like to come into the office a few days every week if the headquarters continued to be centrally located. If enough employees say they would like to do that, the company could decide to downsize office space rather than move the office away from the city center.

Input Is Key

If you don’t ask your business unit heads and employees for their perspective before making cost-cutting decisions, you risk a lot. From company image to lost business opportunities and damaged corporate culture, not getting employee input on where to reduce expenses can be catastrophic.

What is your organization’s protocol when looking for expenses to cut? Do you get input from business unit heads and employees before making final decisions?