Many firms take a reactive approach to decreasing operational costs by reducing headcount without improved processes or technology.
This creates a one time, unsustainable savings that leads to employees working as efficiently as possible, but unable to improve productivity.
In fact, unless there is a corresponding reduction in workload, this can sometimes leads to further deterioration of performance due to the enormous burden left to a smaller pool of remaining employees.
All of the employees’ effort is consumed by executing inefficient processes with bare bones staff and inadequate tools which has a significant negative impact on customer service and employee welfare.
The stress on employees, often high performing employees striving to maintain quality levels, may cause increased incidents of burnout, which may lead to abnormally high attrition rates.
Although reducing headcount is never easy, the tangible savings are immediately realized, so it is often a go to method to reduce operating costs.
On the surface, if an area can operate with the decreased headcount, the workforce is more optimal than it was before the staff reduction. The problem is there are overt and hidden risks and opportunity costs associated with reducing headcount without improving processes and tools.
Business As Usual
When every employee is fully utilized by ‘Business as Usual’ operations, there is no flexibility to handle volume or staff fluctuations.
An increase in business volume can only be addressed by increasing headcount, potentially exceeding the operating budget eroding any cost savings.
Something as simple a thing as several employees being sick simultaneously can severely impact productivity.
In addition to productivity goals, customer service (external customers, internal customers, or both) will suffer when staff is inadequate.
When employees are working beyond their capacity, performance quality is at risk.
Reduced quality can manifest itself in final outputs to external customers or a slippage in Service Level Agreements with internal customers.
Delivering unacceptable products to external or internal customers can result in increased downstream costs due to increased customer service after the process is complete.
Not only is the customer service an additional burden on the operating cost of the organization, employees and customers suffer potentially driving long term damage to company brand.
Aside from performing additional customer service activities, the opportunity cost of having every employee fully engaged in ‘Lights On, Doors Open’ activities is that staff cannot be reallocated.
When the staff is fully consumed with day-to-day operations the ability to use team members for improvements or special projects is eliminated.
When implementing cost cutting measures a deliberate business process redesign effort should be considered. Although quick reductions in cost are achievable without process redesign, to achieve sustainable efficiencies and maintain competitive positioning, organizations must invest in the strategy, tools and technologies to drive success - for the enterprise team.
Connect with me on
David Meehan is an Associate Director with Paragon’s Advisory Services team where he leads high profile management consulting engagements with a concentration on customer experience. Prior to joining Paragon in 2010, David was a management consultant for CSC where he was an instrumental in leading several large-scale, multi-year engagements, including a legacy modernization effort for the Federal Reserve Bank of New York, and the Morgan Stanley Smith Barney joint venture. David received a Bachelor’s degree in Economics from Rutgers University, NJ. He is a United States Air Force veteran having served in Oman for Operation Enduring Freedom.