Lowering labor costs.

Does your company go through an endless cycle of layoffs and new hires? How many people work at your business? About half of them, you say? Is your company's bottom line not as black as it should be? Are your systems, business processes, and employee training out of date? If so, read on. Let's explore a few concerns that almost certainly need to be addressed by your company.

Q. Should a company lay off employees?
A. Yes, as a last resort. But this means that your business is probably in trouble anyway. The employees were hired for a reason, because they were needed. If they are no longer needed due to the decrease in business, then reducing the work force may be a necessary result. For example, when people stop using the airlines the way they used to, then there no longer needs to be as many ticket agents, pilots, flight attendants, and baggage handlers. The airline company must adjust the workforce in order to stay profitable.

Q. Business is good, but wouldn't laying off employees increase profits?
A. It may look good on paper, but without a solid, well trained, productive work force, your company is in trouble. Firing employees without a cause will reduce morale and cause your remaining employees to look for a more secure work environment. The workforce grew to its current size for a reason. The company's management thought it needed this many employees for a reason. If the company has too many employees for the current business needs, then there are alternatives to reducing the workforce through down sizing. Redefining the company's business processes is one alternative.

Q. How can I reduce the company's staff without layoffs?
A. A company can use early retirement incentives to reduce the number of older and more highly paid employees. When someone quits or retires, try and replace them with someone already working for the company. If an employee is performing poorly, fire him. This may save the job of someone who deserves to be there. All of these methods will work over time, and are not quick fix methods.

Q. What is a good long term strategy for controlling labor costs?
A. A company that follows good and sound principles regarding its employees will find a better productivity to labor cost ratio.
1. Treat your employees very well. Don't try to squeeze blood from a turnip. Compensate your employees according to their value to the company. Don't take advantage of them, or the good employees will go somewhere else, and the mediocre to poor employees will stay.
2. Reward employees according to their performance. One of the most important things a company can do is to have ways to measure productivity, and hold employees accountable for their performance, and reward them accordingly.
3. Constantly refine and update the business processes. Even the best employees aren't very productive without a decent business process. The employees closest to the situations are the best ones to give feedback in the improvement process. Use technology intelligently to increase productivity. Increased productivity means more profits, or fewer employees needed.
4. Flatten your organization. With a streamlined business process, a company no longer needs a lot of supervision. Middle management was created in the railroad construction days as a means of communicating instructions from upper management to the workers. The purposes for which middle management was created are no longer needed. In most corporations today, there are still many highly paid middle managers and executives that contribute very little to the company's bottom line.

Q. What about outsourcing?
A. Every company uses outside firms to some extent. No company would think of delivering its own mail. It would use the US postal service, UPS, or Federal Express. To what extent should a company outsource? Be careful! Not everything that looks good on paper is good for the company. For example, a smaller company may want to outsource its networking functions to a firm specializing in information technology. There may not be enough work in this area for a smaller company. On the other hand, a larger company may not be able to get fast or good enough response from an outside firm. The company also cannot control the operations of an outside firm. Again, don't just consider costs. Put customer satisfaction and employee morale above defraying costs.

Q. Should the company relocate some of its operations to countries where the labor costs are cheaper?
A. Once again, this may be a good idea on paper, but make sure that it is also a good long term strategy. Remember the old saying; you get what you pay for. It takes time to train a work force and a working culture. If this is the wrong decision, it could be a fatal mistake for the company.

Again, do what is best for the customer, the product you provide, and be good to your employees. Have good business processes and seek to improve them. Use technology to increase productivity. Make sure the employees are well trained and well equipped to do their job. Measure and reward according to performance.

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Tags: lower_labor_costs increased_productivity outsourcing technology downsizing middle_management lay_offs employees