by Merlin Hernandez

In today’s fluctuating economy, business faces many challenges, not the least if which is the need to reduce costs in order to maximize profit margins. Unfortunately, one of the more facile ways employers have chosen to stay afloat is workforce reduction. Though research has shown that a 10% reduction in workforce would yield only 1.5% in cost savings, this strategy has remained a primary approach.

The cost of employee separation, however, can spiral exponentially if the risks are not given careful consideration – severance packages, accrued vacation, employee outplacement services, and the possibility of claims of discrimination. It becomes incumbent on employers to reduce legal liability by closely examining attendant risks and dealing with any complaints of discrimination quickly and carefully. Such complaints, even if they do not prevail, can lead to workplace tensions, decreased employee morale, adverse publicity, loss of business, government investigations, and costly legal battles with consequent damages and/or settlements. In the end the reduction could cost more that some of the re-structuring options that would have kept the workforce intact.

The key is not to strategize for contraction but for recovery, using the period of contraction as an opportunity for mitering so that when the rough patch is over the business is more effectively streamlined to meet its challenges. Strategic cost management that may involve cost cutting but with an eye on maintaining competencies. The re-design of business processes for greater efficiencies often provide the cost savings that can forestall reductions in the workforce. Other strategies would include hiring and wage freezes, reduction of hours/shorter work weeks, work- sharing, re-assignments, and temporary shutdowns.

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