The hidden pitfalls of cutting staff to reduce labour costs… be warned!November 27, 2014
When profitability is falling, cutting staff can seem like the best option. Particularly when your company has multiple sites, it can be hard to get a handle on all the factors that affect your labour costs. Staffing levels are one of the few factors that you can measure and control directly.
If you do cut staff, you’ll see a lift in profitability per employee. But there are also often negative affects that undermine your business longer term.
Here are four of the most common hidden pitfalls of cutting staff to reduce labour costs (…and keep reading to find out how to avoid having to cut staff to minimise your labour costs!)
1) Lost sales
Remember the last time you were in a store, ready to buy something and couldn’t find a shop assistant to tell you where to find it? Did you keep looking, or shop somewhere else?
Whether your business is a suburban pharmacy or a national supermarket chain, cutting front-line customer service staff can cost you sales. Some sales you’ll lose on the spot. The customer just gives up. Then there are the loyal customers — the ones who’ll stick with you for a while. They’ll notice the drop in service. Too many experiences like that, and you’ll lose them too.
2) Lost corporate knowledge
Even with the best knowledge management systems, so much of the information your business needs to run smoothly still lives in the minds of your experienced staff.
We see this particularly with pharmacies. Staff who’ve been there for a few years know the faces of the regulars, and greet them by name. They get so familiar with the stock, they could find medications blindfolded. Those skills are priceless when it comes to serving the rush of peak-time customers, and for holding onto their loyalty.
Losing those experienced staff can have knock-on effects across your business. For example, junior staff may struggle to learn the ropes without an experienced peer to mentor them. The result: managers get pulled into answering routine questions.
3) Legal risks
Redundancies always carry legal risks. The person being laid off can decide to take legal action against your business, claiming unfair dismissal, or discrimination. Whether the claims succeed or not, they drain your resources in responding to them, and delay resolution.
4) Lost productivity
People who kept their jobs after a round of redundancies often feel that they’ve had a near miss. They worry that their job is next.
With this mindset, engagement-levels fall, and with it, productivity drops. Staff may not feel motivated to work late so that project gets finished on time. They might lose interest in looking for innovative ways to help you stay competitive.
…so what does this all mean?
Laying off good people is never a decision that business owners/managers make lightly. But when you’re under pressure to control labour costs, it can feel like the only option.
…there are alternatives — there are ways you can control labour costs without losing staff. Find out how by reading our free labour cost minimisation whitepaper… it will provide you with the three key steps to reducing labour costs WITHOUT cutting staff!
Get your whitepaper now – Three Key Steps to Minimising Labour Costs (without cutting staff)