The dangers of just swinging the axe

When an organisation is faced with margin pressures, usually the decision is taken to significantly reduce operational expenditure through reducing headcount. Often initial measures might include a recruitment freeze and banning overtime, which typically means less work is completed in a given period and therefore a backlog starts to build up. As restructuring initiatives commence and the consultation period starts, operations will typically experience a drop in productivity as the workforce becomes disenfranchised, therefore output further suffers.

So what happens to an operation from here? Whilst savings have been achieved, the operation is under stress with potential backlogs, lower productivity (due to a demotivated workforce) and less resource to complete defined workloads. Therefore, it is safe to assume service levels will suffer, which is likely to lead to client satisfaction falling. More importantly, simply reducing headcount doesn’t uncover the root cause of the wastage and excessive cost in the operation. Sure we have removed heads from the business, but have we dealt with the issues that led to the need for high numbers of staff in the first place? This suggests that if the issues are still hidden, they will continue going forward.

What many businesses fail to do is take a step back, objectively review ways of working and understand what is driving high operational costs. Is the operation constantly in a fire-fighting mode and therefore inefficiently throwing resource at problems? Are we behind the curve or trying to tackle an ever increasing backlog, again increasing labour costs? Often an operation is simply not in control and constantly on the back foot.

Whilst simply reducing headcount will reduce cost, it won’t resolve the underlying problems that are generating excessive cost. Operational issues are likely to still be prevalent and so the situation is likely to get worse, just with fewer staff and supervisors to deliver the service. Backlogs will build up and service levels may fall, potentially generating financial penalties and creating customer frustration.

So, before we pick the axe up, let’s take a look at alternative options that still achieve the net result of reducing operational cost, but without putting service levels at risk or damaging the relationship with the client or the company’s reputation.

Reviewing an operation in detail will flush out the issues causing wastage and driving excessive costs. Usually, there isn’t just one issue that can be spot fixed, there are a number of issues either at the front end or back end, or both. In many cases common operational issues are simply not picked up or resolved and become embedded in the way a company operates.

By taking effective action to resolve the issues generating wastage and excessive cost, spare capacity can be created, which can initially be deployed to cut through backlogs and reduce the need for overtime. Once an operation is in a steady state, with the right processes and controls embedded, teams can quantify optimum levels of resource required to deliver contractual commitments and start to plan and schedule work more effectively.

Through removing the causes of wastage and increasing productivity, headcount can be reduced without destabilising the operation or, more importantly, letting the client down. So we can reduce headcount and continue to deliver the same output but with less resource, therefore increasing productivity. That’s a good result for everyone and keeps the client happy!