Cost-cutting at the cost of Employee Disengagement? (2024)

In the 21st Century, everything is very fast. Everyone knows that they need to adapt to the change otherwise they will be left behind. Cost-cutting is not a new thing in this adaptation. Organisations reduce their expenses to improve profitability.

Various cost-cutting strategies are adopted by organisations these days, for example:

1. Review all expenses, even the little ones
2. Buy used/ cheaper equipment
3. Can't reduce the salary? - Control the increments
4. Slow hiring
5. Get interns instead of the permanent workforce
6. Workforce optimization (basically overburden the limited staff)

But is this approach working? Are employees satisfied with this approach? No, not all employees are happy with this. It creates a negative impact on the motivation level of employees.

The effects on employees are either direct, because people might be losing their jobs or have to use fewer resources in their work, or indirect because employees might now regard their employer more negatively or become less engaged and productive. In each case, these consequences put the overall achievements of cost-cutting initiatives into question, as they can drive additional costs. Over the last decade, organizations made significant investments in creating a positive employee experience. However, when there is increased pressure to cut costs, many of these investments are at risk of not paying off. Organizations are especially eager to maintain and grow their employee engagement and productivity during uncertain economic times. Overall, organizations cannot plan cost-cutting initiatives without taking their impact on critical employee variables, such as experience, engagement and productivity, into account.

The objective of all cost-cutting strategies aims to increase profitability but it decreases one of the most important things i.e. Employee Satisfaction. Controlling the cost of resources means there would be fewer resources available for the employee through which they need to get their work done by the same deadline. Also, the workforce would be limited which may cause the overburden of work on them. The hiring of a resource gets slowed down to reduce the cost on workforce & at times hiring more number of interns for the work. Hiring an intern could be a smart move to get the same work done at a lesser amount but this also has some cons which include that the intern would leave in the next few months. All the time, effort & training you will put on him/her comes back to square one. Now, hire one more inter, train him/her & the same cycle will repeat. Employees are also very reluctant at times to train the interns as they know that the resource will leave in some time & they need to do it again & again. At the end of the year, when employees are expecting a good raise for their extra mile effort, they get peanuts.

Now just imagine employees working with fewer resources, fewer facilities, less increment, more work and responsibilities & with same deadlines. Work-life balance declines with no added advantage not even in terms of salary. Sounds like disengagement? Indeed, it is.

When you read the vision & mission statements of such Organisations you will see that they are aiming to be highly customer-focused, industry leaders in delivering quality products & services to their customers & what-not. Imagine Organisation & Customers are two distant points A & C respectively. The employee is B i.e. Bridge between both the points. Now A wants to make C happy & satisfied they need to make B strong otherwise the connection would break. And the ultimate objective will be unfulfilled. In other words, Organisations should make their employees satisfied & happy who will in-turn make their customers happy.

Employee experience is a people-centred activity. Thus, CHROs need to take the lead when it comes to aligning functional and enterprisewide cost-cutting measures with maintaining a positive employee experience throughout the organization. The likely impact of every cost-cutting initiative on employees needs to be taken into account when calculating the potential cost savings. HR must demonstrate the hidden costs associated with cost-cutting and find ways to level cost reductions with impact on employees to drive efficiency and effectiveness in cost-cutting both in the short- and the long-term. The key is to establish a continuous project and risk management system that monitors all cost-cutting measures. Also, the objective should be to reduce the cost but not at the cost of dissatisfaction of employees.

Sources: The Impact of Cost Cutting on Employee Experience and Talent Outcomes - Gartner

https://www.gartner.com/en/documents/3982502/the-impact-of-cost-cutting-on-employee-experience-and-ta