Business

Friday February 27, 2009

Management must take the lead in cutting costs

Psychology a work - By Dr Goh Chee Leong


IN the context of the current global financial crises, the catchword in most organisations around the world has been “cost cutting”, or put more positively, “cost rationalisation”.

To survive, we must cut wastage, prioritise expenditure and maintain a laser-like focus on what is essential for growth and profit.

This kind of fiscal discipline is of course easier said than done. Easy to plan, not easy to execute, and for the simple reason that it involves a high level of buy in from employees at all levels.

There are ample examples of organisations around the world in which employees have not just given their cooperation, but have taken initiatives of their own to help their companies save cost.

For example, in the US, some employees have volunteered to accept a pay freeze, or even a pay cut to save jobs. In other organisations, staff have been willing to work with less resources, to forego certain expense claims. Staff in Japanese companies are working with fewer lights and less air-conditioning to save electricity.

The question is: How do we facilitate this level of buy in?

The following are some observations I have made:

The medicine begins at the top

Before you expect lower level staff to start accepting “painful” remedies, the top level management must show that it can also take the “bitter pill”. Leaders need to take concrete steps to cut wastage and excessive expenditure at their level and the workers need to see this.

I know organisations in Malaysia, where the CEO or MD has taken a voluntary salary cut. Some have even abstained from drawing salaries for one year so that their company can ride out the crisis.

Similarly, I know leaders who have volunteered to pay all their travel expenses, and who cut back on unnecessary overseas trips, or who opt to take economy rather than business class seats.

The point here is that integrity inspires followership. Many staff are willing to take potentially painful steps to save company money if they feel that their leaders practise what they preach.

Conversely, if they still see their top management spending company money on million-dollar cocktail parties and corporate jets, why should they voluntarily comply with requests to freeze their own salaries or work with less resources? Why should lower level staff take ownership of the problem when senior management has not?

It’s about saving jobs, starting with mine

In a crisis, people are willing to put aside all differences and work together because everyone understands that you swim or sink together. At some point, survival instinct kicks in when the threat becomes real enough.

This is the simple principle of inter-dependence. The company depends on the staff to keep alive and the staff depend on the company to protect their jobs. That’s supposed to be the deal. Intertwining fate. If the company goes under, we all go under.

When staff see the direct connection between the company’s financial well-being and their own job security, they should appear more open to doing what it takes to save cost.

But at the same time, the company needs to demonstrate its willingness to try as much as it can to protect jobs. The reality is that sometimes jobs need to be cut. However, top management must be SEEN to be committed to putting the welfare of its staff first. Then you will get buy in when it comes to cost rationalisation.

In the past, some staff have just abandoned ship when the ship appeared to be sinking. The problem in today’s economic crisis is that chances are, all the other ships are sinking as well. All companies are cutting cost.

Encourage thinking and initiatives

The people who know best where and how to cut cost are the staff on the ground level. Top management may have some generic notions and ideas as to where the wastage may be, but in most cases, it is those on the factory floor who know exactly where the wastages and duplications are.

Empower departments and units to start their own cost cutting initiatives. Have different departments share these ideas on the company website. When staff create ideas and plans, they are more likely to take ownership of these ideas and plans.

In the end it’s about communicating like adults. It’s about being up front and honest about the challenges and threats we face in these economic times. It’s about gaining trust by showing that management is willing to lead by example. It’s about communicating a sense of interdependence and fraternity, not just through words but by our actions.

  • Dr Goh Chee Leong is the vice-president of HELP University College and a psychologist. We welcome feedback on this article. Please email to starbiz@thestar.com.my

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