How To Achieve ‘Lean,’ Not ‘Mean,’ When Cutting Your Company’s Costs

Uncertainty about the economy doesn’t do companies any favors. When business and consumer spending slows, leaders face tough decisions about which expenses to cut. And workers worry about whether those cuts will send them to the unemployment line. It’s not an unfounded fear, as 2023’s layoff announcements from big-name companies keep coming.

During this year’s first quarter, 136,000 employees got their pink slips. While tech giants have been in the news with headcount reductions, large banks, auto manufacturers and retail pharmacy chains are also letting people go. It’s decisions like these that make employees question whether leaders are on their side.

When times are tough, it’s convenient to slash the payroll. However, there’s more to running a lean operation than reducing staff down to a skeleton crew. With any cost-saving measures, you want to be attentive to your employees’ needs and enable your company’s long-term strategies. Here are some ways to achieve both.

Target Inefficient Processes

Yes, the salaries and benefits for the people on your payroll can be significant costs. But inefficient processes could be what’s truly costing your business in terms of lost productivity. You could be zeroing in on the wrong target and damaging employee morale by cutting your HR budget.

The phrase “work smarter, not harder” is about finding the most efficient way to accomplish your goals. Take a team of IT support techs as an example. From a high-level perspective, you notice their resolution times are too long. Yet it also appears they’re not devoting enough time to work-related tasks. Customers aren’t getting the service they deserve, while the company is apparently paying the team to twiddle their thumbs.

It might be tempting to call everyone into the office separately, asking them to explain what they do around here. You can take a different approach by focusing on the tools and processes the team has at their disposal.

In this case, support techs may be working with outdated software that doesn’t enable them to efficiently tackle the problems they see. The team feels their efforts are futile, so they compensate by slacking off. By identifying what’s driving the undesired results, you can implement more efficient tools and processes. This approach may take additional time upfront, but it demonstrates your willingness to address shortcomings human to human.

Be Strategic

To seem fair, leaders sometimes reduce costs across the board. They cut 10% of staff from all departments, for example, or tell every mid-level manager to stop ordering complimentary team lunches. These moves may save your company money in the short run, but they’re far from strategic. And they don’t always address long-term performance goals.

Gartner reports that only 43% of leaders achieve their savings targets during year one of a cost-reduction drive because of unrealistic objectives. Blanket cost cutting can actually set companies up for repeat failure since the measures don’t address the behaviors behind inefficient spending. You have to think about where the problems lie and the company’s ongoing strategy.

Say your sales numbers are down by 20%. However, you discover one product is behind the drop. There have been technical glitches over the past year, causing customers to lose faith. As a result, they’re discontinuing their use of your company’s other solutions.

Penalizing every business unit with equal cuts doesn’t make sense. It’s better to fix your problem child if your company’s strategy is to be a reliable market leader. The source of those technical glitches may be overlapping vendor relationships—you might simply have too many cooks in the kitchen. Streamlining the resources behind the product will do more to help your company meet its long-term objectives without alienating your staff.

Reskill Employees

AI may be here to stay, but there’s a sharp disconnect between how executives and individual contributors feel about it. Research shows 64% of executives think AI is exciting. Two-thirds of high-level leaders also believe AI will positively impact employees’ experiences. However, 46% of individual contributors think AI is scary, and 31% believe it will negatively impact them.

With AI’s capabilities increasing, employees fear bots will replace their jobs. Automating repetitive tasks may help companies implement lean processes. But relying on technology to completely take over for humans to save a buck is seen as cold. It discounts the contributions and talents of your staff. You’re writing them off in favor of cheaper and faster, but not necessarily better.

What leaders should instead is acknowledge where AI and humans can work together. It may mean automation does take over some of the tasks your staff currently performs. But instead of getting rid of people, reskill them to take on advanced responsibilities in areas of need. Chatbot software may handle insurance policyholders’ initial claim requests, but carriers can upskill employees to address claims with complex injuries.

Thoughtful Cost Cutting

Shaky economic conditions drive budget cuts as leaders worry about whether the balance sheet will even out. While dismissing the idea of cost cutting may be unrealistic, your decisions don’t have to demotivate your team. Targeting inefficient processes, aligning cuts with strategies and reskilling staff members will help you achieve “lean,” not “mean.”