How to preserve human capital value with sustainable cost control
Published by Orgvue September 18, 2019
Cost as a risk to business is constantly on the mind of every senior management team. If managed poorly, cost reduction programs can lead to the wrong people and resources being cut, often at more expense in the long term. This article looks at how effective organizational planning can produce a balanced, sustainable workforce that preserves your most valuable human capital.
Work and value, not people and cost
The way most organizations approach cost reduction today is ineffective and wasteful. Many companies resort to sweeping cuts to meet their budget, with no visibility of the skills and capabilities being lost in the process.
Event-driven organizational planning of this kind will slowly but surely stifle your business. Cost reduction is mostly about efficiency, with little focus on effectiveness. But the days of arbitrarily culling the bottom 10% as part of your annual planning cycle are over. You need to understand your workforce and who produces the most value.
Three ways to a balanced, sustainable workforce
In a recent survey, we found that found 64% of US businesses say cost reduction is the number one challenge they face in the next 12 months. Managed well, risk to the business is low but there’s still the possibility you’ll cut the wrong people and resources, or that a reduction could lead to higher costs in the long term.
We recently published an eBook containing three case studies that show how effective organizational planning produces a balanced, sustainable workforce that will preserve your most valuable human capital. They feature a household food brand, a global fast food company, and an internationally renowned investment and consumer bank.
Between them, these organizations have saved USD$50 million in costs, reviewed work worth US$5 billion, and cleaned data for 250,000 employees, increasing data quality from 60% to 95% in a matter of weeks.
From ‘sledgehammer’ to ‘surgical’
Many of the difficulties that arise from conventional cost cutting programs relate to siloed data and lack of collaboration between teams. Finance working on activity analysis while HR focuses on span of control. Our research shows that only 42% of finance professionals say they have access to people data, largely because collaboration between HR and Finance is poor and only 28% of systems are connected.
The best practice is to combine data sets and bring teams together, so you can understand who’s driving profitability. You don’t want to cut the people that add value to your business, nor do you want to cut the people you’ve invested in through reskilling.
Bringing visibility and control to your organizational planning requires a clear, iterative process that focuses on work and activity rather than structure to manage costs. You need to go from ‘sledgehammer’ to ‘surgical’ in your approach to cost reduction if you want to preserve valuable human capital and make cost savings that last.
Read our ebook ‘Sustainable cost control’
make a fast start to rightsizing your organization in a changing world
No organization could ever admit to being perfectly designed, especially when markets are as volatile as they are today. A popular solution is to analyze the organization by its spans and layers and begin rightsizing it to deliver: