The vicious circle of year-end scrutiny

We are reaching the time of the year when many companies are scrutinizing their sales figures and cost base, looking at the likeliness of near future wins from what is in the sales funnel, issuing travel and expenditure restrictions.

Every year show the same story. A company has not sold enough through out the year and needs to cut down on cost to make a final push to create profit. Maybe the company has decent sales figures but the cost base is too high? Just cut some cost and generate the profit needed….
I think that is fair enough. You need to adjust the business to generate profit, to generate enough money for future investments and growth. The question is how you cut cost?

shareholders_vs_customers

What is not fair is share holders short term expectations being the most important driver of cost saving actions.  Even companies that have positive sales figures, cost in balance and makes a decent profit might have to cut cost just because the share holders expected more! So what do you do with share holders that know nothing else but yearly growth and a positive dividend?

The Human Capital
For many companies the employees are their biggest asset but at the same time their biggest cost. It is no surprise the companies always review the cost of human resources and adjusts to changes in the market place whether it be positive or negative.

Human Capital

Looking at year-end cost cutting actions it is so easy to just set a target for Reduction In Force (RIF) as it possibly has the biggest impact on cost savings. The impact on departments suffering from this RIF is hardly considered and teams just has to ”accept and adopt”.  But reducing head counts is not a quick exercise, depending on country you might not see the cost saving result until six months later. So why is this often considered at the end of the year?

Share holders are not only driven by facts and hard results. There is also a major portion of future expectations. So reducing head counts maybe is a way of showing the share holders decisiveness and a promise of future profit?

However, does anyone know how much a company might loose in revenue and missed opportunities NOT HAVING enough resources to meet the demands when the market turns positive?

Customer Loyalty
Reducing head counts might be considered  good for cost savings and ensuring the share holders get a good payback on their investment in the company. But what about the customer impact?

No matter what management think – reducing your workforce straight across the board WILL have impact on the customer experience. It forces teams to do more with less which will have negative impact on quality and ultimately customer satisfaction. You might be forced to  outsource some of the work to countries with lower salary. This transition will have negative impact on quality and ultimately customer satisfaction.

As far as I’m concerned it is the customer that pays my salary and it is the customer satisfaction that should be paramount when deciding on what cost saving actions to take or not to take.

My conclusion
Cutting back on employees cannot be the
key initiative when it comes to cost savings due to a negative market.  Companies must have the financial strength to keep human capital, their most valuable asset, in times of poor sales or negative market movements.  During this time the company ”Inspects and Adopts” to ensure teams are stronger, more effective and ready to take market shares when sales are picking up. This way you will not loose six month of sales because you need to hire staff.

Joint effort

People talk about companies getting more involved in the customer business so instead of just selling services and solutions and move on there is a joint effort to maximize the customer business and of course drive cost saving over a longer period of time. Seller and buyer are acting more like partners creating a long term WIN-WIN situation. Share holders should act the same.

Companies should look for investors that believe in the company and are willing to make a long term investment and commitment and not just look at short winnings. A share holder should welcome good years but also acknowledge and accept bad years. Overall the financial result might be the same or even better than laying off people as soon as the markets turns down.
Customer Loyalty (CLI) and Net Promotor Score (NPS) would probably benefit from a more stable employment environment and value of the human capital would increase. Human Capital Value includes employee satisfaction, employee loyalty and ability to attract the right resources the company needs.

Year-end_scrutiny-lifecycle

Do I have facts to back this up?
Hell no, this comes from 17 years of working experience spiced with my own beliefs.

Am I wrong or simplifying things?
You tell me? People have a tendency to complicate things and not to question how things are.  ”Why” is an underrated word.

/Parkley

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