Controlling Labor Costs During Downturns

For businesses in cost-cutting mode amid economic and geopolitical uncertainty, slow and steady wins the race.

Shannon Gabriel, TBM Vice President of Leadership Solutions, featured in Industry Today.

The ongoing economic and geopolitical uncertainty continues to make it challenging for companies to project and plan for growth. What has been markedly different this year, however, is the number of businesses that have gone into full cost-cutting mode, including mass layoffs, and the speed and scale at which these actions are happening.

Reducing staff to control costs marks a major shift in how companies have been managing their spending during this downturn, with most making cuts while continuing to invest in areas such as talent management and IT infrastructure. The larger conglomerates are most at fault for the change, as many tend to anticipate and assume and hit the panic button first. Amazon is a good example. Demand has not slowed down – there aren’t fewer boxes being delivered than there were three years ago. But Amazon still decided to reduce its distribution footprint, which has affected thousands of workers and caused more supply chain disruptions at a time when we can least afford it.

While these decisions may seem rational while in the moment, history has repeatedly shown that downturns are not the time to have emotional responses to cutting labor costs. Mass layoffs can produce short-term gains, but they also tend to inflict long-term pain by holding back a company’s growth potential.

Rather than making layoffs a default cost-cutting option, companies should devote time to thoroughly analyzing how they manage and train their people, as well as the myriad processes that support them in carrying out their work, to see where greater efficiencies and cost savings can be achieved first.

Read the rest of this article in Industry Today written by TBM’s Vice President of Leadership Solutions Practice, Shannon Gabriel. Or click below to download the PDF.