Balancing cost reduction and future growth in a restructuring exercise

Liz Barrett, Senior HR Executive, is currently working as Managing Director, Integration at the London Stock Exchange Group and is one of Alium Partners long standing and key contacts.

Many organisations face the dilemma in the current climate of having to cut costs whilst retaining the ability to rebuild and grow once the pandemic is over. This paper sets out some thinking on the principles for balancing cost reduction and future growth in a restructuring exercise.

This paper makes three key points:

  • Cost saving will result in redundancies, but handling this empathetically and in strict accordance with legal guidelines will protect the organisation’s reputation and brand.
  • Driven by a reconsidered business strategy, a new HR strategy which focuses on building the capabilities to compete in the post-pandemic world will be critical to recovery and growth.
  • All of the major aspects of HR must be aligned under the new HR strategy to support the achievement of the business strategy, notably organisational design, employee relations, recruitment, reward and training.
BUSINESS STRATEGY

The first step is to review the business strategy. Which markets, channels, customer groups and products will continue to be viable in the post-pandemic world? Have new opportunities appeared? What needs to be done to exploit these new opportunities (e.g. moving a sales process to an e-commerce platform) and what new capabilities will the organisation require (e.g. digital architects, cyber specialists)?

What are the organisation’s core capabilities? Can they be redirected or repurposed (e.g. if a company has a great reputation for customer service, how can that be translated into an online environment)?

A clear view of the capabilities the organisation needs (and does not need) in the post-pandemic world will provide clear guidance which will allow HR to focus and align its activities around the key business drivers.

BALANCING COST REDUCTION WITH FUTURE GROWTH

Many organisations are under serious pressure to cut costs. However, there are ways to reduce costs without seriously limiting the organisation’s ability to grow in the future. The organisation will need to revisit its HR strategy, giving consideration to the following elements:

  • Organisational design (including location strategy)
  • Employee relations (including culture and employee engagement)
  • Recruitment
  • Reward
  • Training
ORGANISATIONAL DESIGN

Organisational designs (OD) tend to evolve over time, which means that they contain inefficiencies. A review of spans of control and organisational layers and elimination of shadow organisations will streamline the organisation and reduce costs without impacting performance.

OD should emphasise the things to which an organisation needs to pay attention: a new business direction (e.g. digitisation) may be more successful if the function is elevated within the OD (e.g. have the Chief Digital Officer as a direct report to the CEO).

A revised OD should also consider location strategy, as offshoring and outsourcing can reduce costs whilst maintaining (or enhancing) the capabilities available to the organisation. However, these are long term approaches and need to be carefully managed – time for set up, recruitment and knowledge transfer is crucial. If an organisation has an established offshore centre or outsourced relationship, accelerating plans in this area is feasible, but this is not a short term fix and can be detrimental if not done properly. The business strategy will inform this: offshoring/outsourcing non-core activities can be a useful part of a long term restructuring strategy.

EMPLOYEE RELATIONS

Good employee relations practices whilst cutting roles will protect the organisation’s reputation and reduce the likelihood of legal claims. Employment law has not changed as a result of the pandemic: all of the legislation on dismissal, consultation, redundancy and discrimination still applies. Observing due process (particularly on timing and consultation) and treating people empathetically will support the organisation’s employment and customer brand and reputation.

The reconsidered HR strategy should emphasise culture and employee engagement as the organisation rebuilds and reorients itself.

RECRUITMENT

If a business’s strategy is changing, it will likely need to create and recruit into new roles to source the new capabilities required. Perversely, the pandemic is a good time to go to the recruitment market, as talented people have been made redundant through no fault of their own. Video interviewing can be as effective as face to face, but the success of both depends on a rigorous process to identify and assess core capabilities and cultural fit will be essential. Structured interview questions, top grading type approaches and cross calibration across interviewers will all make remote interviewing more robust.

REWARD

It may be tempting (or essential) to reduce the organisation’s salary bill; many organisations are asking staff to reduce their compensation in the current scenario. However, this can only be done if both parties agree: employment law in the majority of countries prevents an organisation from unilaterally reducing compensation (e.g. in the UK, this would be grounds for a legal claim for constructive dismissal, in a number of European countries, minimum rates are enshrined in industry wide collective bargaining agreements). Bonus plans and deferred compensation can offer more opportunity for cost reduction, but issues of contract and precedent need to be attended to. Legal considerations are compounded by morale issues, and compensation reductions can lead to higher attrition when the market does pick up. Reward changes may be essential, but need to be handled very carefully.

TRAINING

The importance of training cannot be underestimated, although it may be tempting to see the cessation of training initiatives as a contribution to cost reduction. Development and embedding of new capabilities is likely to require additional training programmes to be established, but equally the role of managers in the post pandemic world is likely to change, and all categories of staff are likely to benefit from training on the soft skills required to navigate teams through organisational transition.

SUMMARY

It is possible to cut costs whilst retaining an organisation’s ability to rebuild and grow, and there is a key role for HR to play in this process. Handling redundancies well will ensure the organisation protects its employment brand through the cost cutting phase and a new HR strategy, focused on building the core capabilities required by a reviewed business strategy, will allow the organisation to rebuild and grow in the future.

Download the PDF copy of the paper here