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The High Price of Cost Cutting

The U.S. Department of Labor reported Friday that employment was down another 80,000 jobs in March, for a total decline of almost a quarter of a million jobs in the first three months of 2008. With an unemployment rate of 5.1 percent, almost eight million people are unemployed -- that's 1.1 million more than this time last year, and many analysts agree that there's more of the same to come. 

In a recent survey by Financial Executives International and the Zicklin School of Business at Baruch College, two-thirds of the CFOs surveyed identified layoffs and reduced hiring as areas for cutbacks. A Hay Group study, as cited by the Society for Human Resource Management found that along with freezing salaries and cutting staff, employers are making changes to healthcare and retirement benefits, as well as to training and development programs.

Here's where we get into dangerous territory. While there's no denying that the current economic downturn may necessitate some belt tightening, employers should be careful not to secure this quarter's financial results at the expense of the organization's long-term success.

Charles T. Scott, in Workforce Management, cautions employers not to overreact and advises them to keep both business and human capital goals in mind when coping with the "inevitable cycles" that occur in the economy. He points out that for more than half a century, downturns have lasted an average of only 11 to 18 months, and comments that when things heat back up again, the "ongoing war for talent" will still exist.

In today's business world, attracting and retaining the very best employees can provide a competitive advantage. Turnover is expensive, the costs associated with recruiting and training new employees are high and unanticipated side-effects of cutbacks may wind up hurting the organization in the long run. A Perth Leadership Institute white paper indicates that this type of cost cutting can lower employee morale, hamper innovation, create additional turnover, prevent potentially successful programs from being proposed and negatively affect the longer-term competitiveness of the organization. 

In the featured interview for our March podcast, Dr. Rebecca Kelly talked about organizational values and asked whether employers truly value their human capital. One comment she made really stuck with me. She said, "When you purchase a $2 million piece of equipment, you call that valuable. We have to take care of that," and then pointed out that we don't always take the same care with our employees.

When finances get tough, do you stop changing the oil in your car to save $39.99 every three months? Do you stop doing preventive maintenance on your high-tech manufacturing equipment? Do you cancel your subscription to the firewall and antivirus services on your PC or stop downloading critical software updates? Of course not - the costs of expensive repairs, fuel inefficiencies, shortened lifespans, performance decrements, security failures and hard drive crashes would far outweigh the short-term savings realized through these poorly conceived "solutions."

Organizational leaders give plenty of lip service to employees being their "most valuable assets," but actions speak louder than words. Whether in good economic times or bad, it would be ill-advised to cut the health and wellness benefits, stifle the opportunities for growth and development, eliminate the flexibility, reduce the level of employee involvement or give short shrift to the recognition programs that keep employees and organizations performing at their best.

Surely human beings deserve to be treated at least as well as machines.

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About this Entry

This page contains a single entry by Dr. David Ballard published on April 9, 2008 5:46 PM.

What About Dads - Don’t We Get Work-Life Balance, Too? was the previous entry in this blog.

What’s Latitude Got to Do with It? is the next entry in this blog.

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