Cost-cutting and a Company’s Future

 Cost-cutting and a Company’s Future

Is it time to impose a cost-cutting mandate? Here’s how a focus on quality might be preferable to traditional downsizing. 

Warnings of a recession and the pressure for short-term results have driven some managers to panic and implement cost-cutting measures across the board. At the beginning of the year, Resume Builder estimated that one in three companies anticipated laying off 30 percent or more of their workforce in 2023. But cost cutting itself comes with significant risks.

The Downsides of Cost Cutting

According to Industry Week, reducing the labor force or hiring less skilled labor has a detrimental effect on individuals and on corporate performance. The short-term cost savings provided by a layoff can be overshadowed by a slippery slope that leads to a host of undesirable outcomes:   

  • Reduced customer satisfaction
  • Loss of knowledge and skilled workers  
  • Higher voluntary turnover 
  • Bad publicity and shattered trust in company and management  
  • Increased defects and rework by lesser-skilled workers  
  • Lower production output 
  • Overtime payroll expenses 
  • Weakened engagement 
  • No resources for investment in improvement or innovation  

 Not only can cutting costs create short-term problems, but it can also increase costs in the long term and reduce capital for investing in the future.

Additionally, a recent Gallup poll found that 53 percent of workers were quietly looking for another job, without regard to possible layoffs. When you add to that a downsizing initiative, you will be looking at a workforce that is broadly disengaged and wide open to opportunities at other companies. 

The Role Quality Can Play for Better Outcomes 

Improving quality is an alternate route to a cost-cutting mandate. It changes the focus from who to lay off to where opportunities lie to curb waste, improve operations, and better satisfy customers. Wise CEOs and other top management often invest in continuous quality improvement and quality innovation before committing to major cost cutting in the form of downsizing.

Quality is not just found in the product shipped to the customer. Quality is a mindset, a way of working and planning throughout the organization. Every department must analyze how to improve quality: You want quality planning, quality operations, quality R&D, quality finance, quality customer service, quality maintenance, quality security, and so on. Creating quality is a collaborative process through which departments cooperate to help each other continuously improve. 

Siloization and Its Adverse Effect on Quality

In siloed companies, the risk of having departments that do not respect other departments’ input is high. In companies like this, many department heads are actually adversarial toward others. Sales versus operations versus finance versus the rest of the company is common. This lack of cooperation and respect is antithetical to the quality mindset. 

In Joel Trammell’s article “Why CEOs Must Be Organizational Silo-Breakers,” he urges CEOs to be the champions innovation and change: “We’ve all come across colleagues with this attitude: ‘Our team has always done things this way, and no outsider (from another department) is going to change it.’ That insularity and regression to the status quo is a hallmark of silos. Root it out by establishing innovation and change as key components of your culture. If people are constantly seeking out new and more effective ways of operating, it’s harder to get stuck in a local mindset.”

One solution to siloization is to establish roundtables that include participants from various business units. The roundtable team is designed to solve a specific problem, often around quality, such as identifying waste, hidden costs, or improvement opportunities. The participants cooperate to form an appreciative system where everyone’s input is valued and respected. The team creates multiple scenarios that can be tested before rollout.   

Drive Out Fear   

Oftentimes, mid-level managers and frontline workers operate under fear of not making their numbers or making mistakes. According to the late W. Edwards Deming—an early leader in the domain of quality management—a system that generates poor numbers and poor quality is usually at fault over 90 percent of the time, not the people themselves. In other words, workers will get beat by a bad system every time.   

Managers must work on the operations system so the workers can be effective within the system, according to the late Dr. Joseph M. Juran, who is widely regarded as the founding father of many of the key quality management programs used by organizations today. Juran was instrumental in helping the Japanese improve manufacturing after World War II.

Both Deming and Juran agree that an operation can never be optimized without worker empowerment. No amount of motivational speeches and plaques on the walls will convince workers that quality is their job. This can only be achieved when top managers empower workers with the authority to be quality agents of change, without going through managerial layers or seeking permission to try new things.  

Operational Processes and Procedures

Every employee in every department operates through a process. Finance follows a process for invoicing and payroll. Maintenance has a process for maintenance and immediate repairs. The manufacturing process is key to producing products quickly and efficiently. Quality should drive all of these processes for mapping and controlling their functions. Every department head should continuously ask their staff how to manage the department better, faster, and cheaper.

Most organizations have standard operating procedures (SOP) to train workers on how to perform a specific job sequence. What’s needed are quality operating procedures (QOP) that provide workers with a holistic understanding of the entire production system, including specific training on safety and production sequences to troubleshooting and reporting.

A quality-oriented company is continuously improving. This means QOP will constantly change because of the continuous input from managers and operators who discover new ways to improve the system. Deming’s Plan-Do-Study-Act framework is useful for ensuring procedures are continuously updated so they do not become stagnant, obsolete, or worse, no one is using them.

Quality and Customer Satisfaction is Everyone’s Job 

Ultimately, fulfilling customer satisfaction without sacrificing quality is an ultimate goal. You must gauge the ROI of customer value while paying attention to the costs of service. Every department can contribute to the ROI of customer satisfaction if focused on quality improvement.  

It is impossible to plan effective cost-cutting without understanding its impact on critical variables such as employees, operations, and customer satisfaction. Focusing on quality improvement throughout the enterprise, not just on layoffs and other simplistic reductions, can prevent the possibility of making the wrong cuts.

G. Mark Alarik

G. Mark Alarik is president of GM Alarik Continuous Improvement & Quality Consulting. Alarik has 20 years of experience in executive-level coaching and is a hands-on project leader in operations analysis, innovation, and front-line worker training. He is based in San Antonio and serves companies throughout the US.

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