Little Oaks Company: Cost Reduction Methods

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Table of Contents

Introduction
Possible options
The strategy to be utilised
Guidance to implement the strategy
Implementation
Evaluation
Conclusion
Reference List

Introduction

Little Oaks is a company with a well-established culture that is based on effective collaboration, innovation and creativity. People have been seen as the major asset of the company, which translated in the creation of favourable working conditions characterised by high salaries, attractive pension and health insurance programs, benefits and development options.

More so, employees received the company’s shares, which also contributes to the development of a more committed staff. Nonetheless, the organisation is facing certain financial constraints, and the reduction of staff-related costs is inevitable. There are a number of options that can be employed. This paper includes a brief analysis of several cost reduction methods, evaluation and justification of the most appropriate one and guidance on its implementation.

Possible options

Redundancy seems one of the most widespread and effective ways to cut costs associated with human resources. It can be easily controlled as the management decides on the number of people who should leave (Pries & Quigley 2012). Clearly, this tool is associated with various adverse effects. First, it may result in some legal issues as HR professionals may fail to comply with the existing regulations. It will also have a negative impact on the employees’ morale and motivation, which may lead to poor performance of the entire company.

To avoid legal issues, it is possible to resort to voluntary redundancy. However, this measure will still lead to a negative image amongst employees. Of course, redundancy may also help to get rid of less efficient employees. On the other hand, this strategy will require effective evaluation and assessment program that will have a negative effect on people’s motivation and commitment.

This may result in natural wastage that also has significant disadvantages. For instance, high-profile employees (those who recently joined the company and those who have been working for a while) may wish to seek for new employment as they are likely to land a good job while low performers are likely to be satisfied with their current positions (Nevin 2016). The company may lose high-profile employees and have difficulties with hiring talent. Therefore, this tool is associated with considerable disadvantages for the business.

Salary freezes and cuts is another common method of cost reduction. However, it can hardly be applicable in Little Oaks. One of the major barriers to its implementation is the organisational culture. One of the company’s priorities has been the adequate reward of people’s input. Salaries have always been higher than the market average, which can be regarded as one of the reasons people choose the company.

Clearly, salary cuts and freezing will be helpful for a short period but will have detrimental effects if used excessively (Avon 2016). More so, the introduction of such policies should be properly communicated. Employees may be committed to organisational goals and values, but they also have some responsibilities and needs. Thus, experienced employees may seek employment in companies where salaries are higher. At that, the system of salary cuts can be used, but it should mainly affect low performers.

Flexible labour force can be a good option as it is associated with decreased costs and limited (or no) redundancy or natural wastage. Humphries and Gibbs (2015) note that flexibility is a key to companies’ success as it leads to satisfaction of all stakeholders involved. Flexible working hours, as well as the ability to work from home, will improve employees’ motivation. Additional safety measures may be required, but they will not be overwhelming.

Some companies find outsourcing the most effective tool to achieve cost reduction. At the same time, this measure is still associated with low morale of employees, natural wastage, redundancy (both voluntary and compulsory) (Avon 2016). More so, outsourcing is becoming less profitable due to rising labour costs in developing countries (Humphries & Gibbs 2015). Therefore, this tool is unlikely to be effective.

The strategy to be utilised

It has been acknowledged that the management of a downsize process often requires multiple steps as one strategy will not suffice since it is likely to address one aspect while a more complex approach is needed (Coyne, Coyne & Coyne 2010). Thus, it is necessary to combine such tools as the flexible labour force, salary cuts as well as a change in training and development of the staff. The three methods should be used simultaneously, and HR professionals should manage them effectively.

The flexible labour force tool should involve giving employees opportunity to work from home, to work flexible hours and work on their projects (Humphries & Gibbs 2015). Of course, this should not interfere with the employees’ work on projects. It is also noteworthy that flexibility does not presuppose hourly payment. Although this has become quite a sensitive issue for the employees of Little Oaks, the company does not have the opportunity to pay hourly due to financial constraints. Importantly, this aspect should be discussed, and HR professionals should start a debate on the hourly pay. It is important to make employees understand that their benefits compensate this payment policy.

Salary cuts can be a necessary measure, and it should be implemented with special attention. It is important to develop proper communication with employees and explain that salary cuts will be a temporary measure. It is also necessary to make sure that only the least efficient workers will be affected (Avon 2016). It is vital to provide clear principles and criteria so that employees could understand whether they can be affected.

Finally, the change in T&D is crucial for Little Oaks. The company had to reduce investment in this area, but it has already had quite negative effects as the employees’ performance decreased, as well as their motivation. Many companies simply cut costs and invest smaller funds as they do not see any improvements. Top managers often see T&D as something costly and associated with rather intangible long-term effects. At the same time, training and development may require reasonable funding and have significant positive effects (Pries & Quigley 2012).

For example, the organisation can consider using online learning options that are often more affordable and accessible. Employees can learn or even have an online course without leaving their working place. Mentoring should be rewarded, which can be achieved through the use of a mentoring program. This program would involve rewarding mentors (bonuses, extra days off, and so on) and novice employees’ choice. New employees and those who have been hired recently will be free to choose whether they need certain development, training and mentoring, which will presuppose a smaller salary or they can do without it. All employees’ performance will be regularly evaluated, and low achievers may be fired.

Guidance to implement the strategy

Step 1: Introduction

The implementation of the changes will include several steps. The first step implies communication with employees. Top management should address all employees and announce that the company’s policies will undergo changes. It is especially important to communicate the message concerning the need to implement the change. The employees should understand that these measures are vital for the company’s development or even existence. The employees should have an overview of the aspects that will undergo changes.

Step 2: Informing

After the development of the policies and the announcement by the top management, HR professionals should inform the employees about the new policies. This communication will be carried out through memos and regular meetings. HR professionals will provide information on the flexible work options and will invite employees to choose any of them. Clearly, the benefits of flexible work should be provided (ability to balance family life and work, ability to work on own projects, ability to self-develop).

The training and development options will also be described. Employees will be encouraged to choose any learning, development or mentoring opportunities. The description of the payment policies changes will include the information on rewarding mentors, salary cuts of low performers as well as criteria of performance evaluation. The terms of evaluation should also be clearly described. The policies related to salary cuts should be quite held during six months. Prolonged use of this policy may have quite negative effects on employees’ motivation.

Implementation

The stage of implementation will be closely related to network management (relationships in the workplace). It is crucial to make sure that employees are aware of the new policies and the period of their implementations (the data of the start and termination). Ballinger et al. (2011) emphasise the importance of network management in the process of such changes implementation. The researchers argue that managers should understand whether the policies are accepted positively. It is crucial to understand the employees’ attitudes and the level of their satisfaction (or dissatisfaction) with the policy. Self-reports, reports, group discussions and face-to-face conversations can help HR employees to estimate the efficiency of the policies introduced.

Evaluation

Of course, it is crucial to evaluate the efficacy of the policies and new regulations. Some of the criteria will include the employees’ performance as well as satisfaction, staff-related costs (with the focus on its reduction), and financial performance of the company. It is important to change some policies based on their applicability and the employees’ views. When the company have the financial opportunity to invest more, the policies should be adjusted accordingly.

Conclusion

On balance, it is possible to note that Little Oaks should reconsider its staff policies as regards flexibility, payment and training and development. A set of changes should be implemented. Employees should be given an opportunity to work flexible hours, or even work from home. Financing of training and development has been decreased recently, but the company should not stop training employees.

The organisation may benefit from the use of online training courses. Mentoring can be awarded while certain development options can be voluntary. Thus, novice employees can choose whether they want to have a mentor during a certain period. The new employees will have reduced salary if they are eager to have a mentor. Finally, employees’ performance will be regularly evaluated, and the results of the evaluation will affect the payment system. Salary cuts will also be applicable during a six-month period for low performers.

Reference List

Avon, E 2016, ‘Organisational change, human condition and the moral contract’, in AMD Gomez & D Crowther (eds), Ethics, psyche and social responsibility, CRC Press, New York, pp. 35-59.

Ballinger, G, Craig, E, Cross, R & Gray, P 2011, ‘A stitch in time saves nine: leveraging networks to reduce the costs of turnover’, California Management Review, vol. 53, no. 4, pp. 1-23.

Coyne, K, Coyne, ST & Coyne, EJ 2010, ‘When you’ve got to cut costs – now‘, Harvard Business Review. Web.

Humphries, A & Gibbs, R 2015, Enterprise relationship management: a paradigm for alliance success, Gower Publishing, Ltd., Burlington.

Nevin, M 2016, The strategic alliance handbook: a practitioner’s guide to business-to-business collaborations, CRC Press, New York.

Pries, K & Quigley, JM 2012, Reducing process costs with lean, six sigma, and value engineering techniques, CRC Press, Boca Raton.

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