In these tough economic times, as in others, there are many news items on companies declaring bankruptcies and announcing substantial staff cuts. What is different this time is that I am also reading about a number of cost-cutting strategies that are gaining in popularity and aimed at reducing expenses without disrupting business operations or laying off staff.
Fortune 500 companies, as well as smaller ones, have stopped their employer matching of employee 401(k) contributions. Factories are being closed down for a specified period of time with the unpaid furloughing of employees. Unpaid holidays are being given. Then there are those businesses that indicated there will be no salary increases in 2009. And I just came across a report that one of the largest accounting firms in Israel is reported to have made across-the-board pay cuts of 5 to 10 percent, except for certain lower-paid staff. We are also seeing the introduction of four-day weeks.
State and local governments are also getting creative in their cost cutting. For example, rather than reducing the funding of zoos and botanical gardens, some are considering totally eliminating their funding of these institutions. In the Hamilton Spectator out of Ontario, Canada, Joan Walters reports a township near Chicago is offsetting the rising price of road salt by cutting its 1,200-ton supply with crushed rock, and the Miami City Ballet is replacing live orchestras with recorded music for some performances.
These creative cost-cutting strategies indicate the economic downturn is impacting more, and they also reflect an expectation that it will continue for some time. On the plus side, in general, they also indicate that companies are developing an arsenal of intermediate moves short of layoffs or a declaration of bankruptcy.
This aversion to staff reductions can be attributed to a number of factors, including that often operations would be impaired if cuts were made, skilled employees are difficult to replace, and once the economic times get better the company doesn’t want to be understaffed.
Interestingly, there seems to be understanding and acceptance by many in the workforce who are affected by the end of employer 401(k) contributions, unpaid leaves, etc. It appears to be based on the belief that, “At least I have my job.”
This marked change in the views of business and workers is important to firms whose revenue in consulting has been growing. Although businesses, in these tough times, will generally look to reduce discretionary spending for consulting, I don’t think that will be the case where accounting firms can offer and successfully market a steady supply of cost-saving strategies. Examples I have already seen are firms that reworked deliveries of a client to reduce fuel costs, and encouraged the greater use of remote access to increase efficiencies. The key, I believe, for these accounting firms is to showcase that the adoption of these strategies will not impact the quality or supply of the client’s services and/or products, nor cause a reduction in experienced staff.
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