How to Introduce Cost Cutting Measures Without Causing Employee Panic

There comes a time in every business when cost cutting measures must be implemented. There may be a decline in the economy, a new competitor may open up down the street, or you may simply be looking for ways to reduce your monthly expenditures. Now more than ever businesses are looking for ways to cut costs, while still remaining a leader in their industry.

When cost cutting measures are introduced to employees, one of two things will happen; employees will jump on board and be enthusiastic about the new “lean” company or more realistically, employees will fear that the cost cutting measures are just the step before massive layoffs. Your employees are well aware of the financial crisis that your company may be facing. They will suddenly work everyday in fear, which will affect productivity.

So, if cost cutting measures are necessary, how can you introduce them without causing a panic among employees?

Be Open and Up Front with Your Employees

First off and most importantly, always be open and up front with your employees. Rumors spread like wildfire and can damage your company’s reputation, discourage motivation, and cause your best employees to accept job offers elsewhere. You may not have all of the answers right now, but it is always important to be honest with your employees. Hold a monthly or weekly meeting to update employees. The best way to avoid rumors is to always be the first to provide employees with only the most accurate information.

Introduce Cost Saving Measures Gradually

Secondly, introduce the cost saving measures slowly. Forcing the employees to learn 25 new concepts in one week will overwhelm them. Instead, introduce the methods slowly, perhaps one per week. The employees will have time to get used to the new cost cutting measures, without feeling overwhelmed or rushed.

Get Employees Involved in the Process

Thirdly, get the employees involved as much as possible. During your monthly meetings, encourage employees to speak up. Consider starting a friendly competition. Employees can submit cost cutting suggestions and, should their suggestion be used, offer them a small bonus. That’s right, a bonus. While you are trying to cut costs, it’s important to remember that your employees are directly immersed in your business processes. Their hands on experience allows them to look at the process and note ways that money can be saved. If a suggestion saves your company $5,000 a year, why not give the employee a $100 bonus?

Ask Employees for Feedback

Lastly, as new cost cutting methods are being introduced, be sure to get employee feedback. Many managers implement methods that look excellent on paper. However, the affected employees may quickly find that the new method means cheaper materials that don’t satisfy customers. While you may be saving some money, losing customers is not worth it. Encourage employees to be honest about the new methods. If they see them working, but with room for improvement, allow suggestions. If the methods are simply not working at all, take the employee’s advice and try something else.

While it is necessary to implement cost saving measures during financial hardships, it is important not to sacrifice quality or employee happiness. If your methods are forced onto the employees too quick, you may find them fearful and unmotivated. If you are willing to sacrifice quality materials to save a few dollars, don’t be surprised when your customers take their business to your competitors.

While different methods will work for different companies, it is generally a good idea to keep employees involved and active in any cost cutting methods. Often times, it is your employees who will suggest practical solutions to saving money in your business. By keeping communication open, employees will feel comfortable at your company and can offer their own ideas.