Cost Cutting

Group Members

Ruchir Avlani 02Jayesh Bathija 05Archana Chauhan 09Jinal Panchal 31Vaishali Patel 35Riddhi Sheth 51

Introduction

• What is Cost Cutting.

• Why Cost Cutting.

• Case Study.

• Planning for Cost Cutting.

• Implementation of Cost Cutting.

• HR Functions.

• Effects of Cost Cutting.

Cost Cutting ????• Do we really need to incur this cost?

• Understanding the importance of continuous improvement

• Is there an alternative and more efficient source or solution available?

What is Cost Cutting? • Financial Definition: Trying to improve business performance by using

effective methods of production, for example retrenching some workers. It may require shedding less productive activities. It can be instructive to assess and evaluate which products or services in your operation are generating cash.

• The reduction of the amount of money spent on the operations of an organization or on the provision of products and services.

• Cost-cutting measures such as budget reductions, salary freezes, and staff redundancies may be taken by an organization at a time of recession or financial difficulty or in situations where inefficiency has been identified.

• Alternative approaches to cost-cutting include modifying organizational structures and redesigning organizational processes for greater efficiency

It’s the Infosys way…• Infosys Case:

Infosys said the letter had been issued basically to stress the company's focus on cost-cutting. "The overall message is -- don't think any expense is a small expense and don't unnecessarily spend money.

•Log in on time

• Discretionary spend slowdown

• Deliver or. . .

• Travel economy

• Variable pay cut

• Smaller pay hike

Why Cost Cutting

• Cutting costs is often the first action when profitability doesn’t reach expectations or needs

• Grappling with falling sales and a dropping bottom line, companies have had no alternate but to put cost-cutting measures in place.

• The morale has to be maintained and the spirit continued even whilst stringent mechanisms of cutting costs seems to be the way forward to survive.

• Conducting “want vs. need” analysis on your current expenses

• It is easier to retain an existing customer than to identify, close, and deliver to a new customer

• Job responsibilities decrease : project is completed employee lies in position , salary had to be frozen at such stage

• Ensuring all computers and lights are switched off at the end of the day to bigger business ideas which could be incubated

Why Cost Cutting

Ruchir Avlani1.Class Activity2.Case Study

Reliance Retail vs The LootOperations: Closed Many Stores Opened as many as 70 Stores

Recruitment: It was freezed and massive layoff

Company was hiring many people at a reasonable cost.

Admin Facilities: Internet Closed, Tea Coffee Expenses, Water, Toilet rolls, Food court Timings, Alternate Saturday Off, Stationary Slab, Air travels

Reduction on stationary usage

HR: Increment of only 3-4% was given - Increment was only given to Top Performance team of 15 %. - Recruitment was done majorly through internal Sources and recruitment outsourcing was stopped.

Timings: Work timings was increased by 1 hrs

Changed from 10.00 Am - 6.00 PM to 8.00 – 4.30 Pm.

Merchandise: Only required merchandise was purchased

More bulk purchases were done to opt for more discounts.

Funny Tips for Cost Cutting

New SUV

Jayesh Bathija1. Caution !!! Are you Cost Cutting2. Planning for Cost Cutting

Caution !! Are you Cost Cutting

• Cutting costs is a necessity in today's economy, but beware:

1. Costs might not be the only thing you cut in the process. 2. Cut the Staff performance and productivity.3. Cut the People's trust and morale, 4. Cut the team spirit you have carefully nurtured

When you cut costs, you risk cutting these too.

The good news is, it doesn't always have to be that way. With careful planning and implementation, there are ways to slim down your outgoings and run things more efficiently - without damaging the fabric of your team.

Caution !! Are you Cost Cutting• Cost cutting without understanding the impact on things such as

productivity and capacity can greatly impair the ability of the organization to compete.

• The implications to the business in the long term and the overall sustainable effectiveness of cost cutting are more difficult to capture. Hence, before undertaking cost cutting decisions, the organization must do the following: – Understand where current financial performance is generated – Determine what the core business activities and areas of critical expertise are – Quantify the cost of processes, activities, customers, and products – Understand the time requirements for restoring capacity – Identify organizational constraints on revenues – Prioritize projects and activities

Planning in Cost Cutting

If you are on a cost cutting mission then consider the following approach to cost reduction.

Planning in Cost Cutting• We can classify costs into four different categories.

• Essential Costs: – Are those that are incurred to create and deliver value for customers.– If by any chance these costs are reduced then a company will be

compromising on the value that it offers.

• Necessary Costs:– Are those incurred to keep the business running. – Certain employee related expenses, statutory costs.– It's hard to reduce these costs but they can at best be monitored and

kept as tight as possible with some rules & regulations.

Planning in Cost Cutting

• Optional Costs:– When a company can afford luxury it incurs optional costs.– It help boost the image of the company among employees, customers,

industry, analysts and the lot.

• Unwanted Costs: - If there is one cost that dominates then it's unwanted costs.

Cutting Costs the Smart Way While initiating a Cost Cutting process in an organization, The organization should have

participation & inputs from all the verticals of the organization.

Human Resource : RecruitmentsTraining & Development / Cross TrainingPerformance Appraisal

Operations:TravelInventory Pilferage Less Expensive EquipmentsCut down non-essential work

Cutting Costs the Smart Way Purchase / Acquisitions:

JIT PurchasingVolume Purchasing Lease

Finance:Short / Long Term LoansMerger & AcquisitionVenture Capital

Riddhi Sheth1.Steps for Implementation of Cost Cutting

2.Recommendations

Steps for Implementation of the cost cutting methods

• Establish a purpose: “Personalize" the need for cost cutting

• Urgency & Purpose: Employees to see how cost-cutting fit into the "big picture" of what their company was trying to achieve.

• Remain positive & on-message: It must be received by employees as a positive step that supports long-term plans for growth and efficiency rather than as a negative signal of future financial difficulties.

Steps for Implementation of the Cost Cutting methods

• Take it slow, keep focused: Start with a small program and work up gradually to larger cost-cutting initiatives. At the same time, keep the program focused on the day-to-day things that employees know best.

• Get the word out: Tell ''em, tell ''em, and tell ''em agai%n. message should be delivered via multiple channels. It won't sink in the first time, and using multiple channels will help reinforce the message.

Steps for Implementation of the Cost Cutting methods

• Getting the word back in: - Once employees have been motivated to suggest potential ideas, there needs to be a quick and simple way to capture the suggestions and respond to them. Don't use systems that employees are not accustomed to or time-consuming to submit. After all, employees have a job to do.

• Reward both activity and performance: - Provide some sort of incentive to our employees for submitting

suggestions.

Recommendations:

• Large organizations may have difficulty delivering a cost-busting message uniformly across the company; it may be better handled at a departmental or divisional level, depending on the size of the organization.

• Don't bite off everything at once. Start off small, and build on what is already in place.

• Feedback should happen quickly

• Do respond, even to those ideas that just aren´t going to work.

Vaishali Patel1.HR Function

2.Survey Report

HR FUNCTION• The HR Function is to bring new ideas, to change the HRM Processes and

to develop or change the procedures.

• The HR Function has to focus on unpopular innovations during the recession as the role of Human Resources during the recession is to save money to the organization.

• HR Function has to find innovative solutions

• The role of the HR Function is not to cut the costs for the time being, but to make the organization stronger and ready for the future growth.

Recruitment

Performance Management

Effective Manpower

Planning

Training &

DevelopmentOutsource

HR Process

Make New Policy

HR FUNCTIONS

Survey Report…The most recent survey, which was conducted among 117 employers in early December, found that other popular cost-cutting measures included:

•Downgrading/canceling holiday party (35 percent)

•Increasing benefits communication (32 percent)

•Eliminating/reducing seasonal workers (28 percent)

•Organization-wide restructuring (23 percent)

•Raising employee contribution to healthcare premiums (20 percent)

•Increasing pay communication (16 percent)

•Restructuring HR function (14 percent)

`• Implementing a salary freeze (13 percent)

• Having a mandatory holiday shutdown (13 percent)

• Reducing/eliminating other employee programs (12 percent)

• The percentage of employers that have already implemented salary freezes jumped from 4 percent in October to 13 percent in December.

• Sixty-one percent of employers reported that they reduced their planned merit increase for next year from 3.8 percent to 2.5 percent.

Survey Report…

Jinal Panchal1.Effects of Cost Cutting

2.Solution or finding of alternative

Effects of Cost Cutting…

• When organizations cut costs, decision makers often assume that the parts of the organizations that remain after the cuts can continue to produce at pre-reduction levels.

• Fact is they rarely do!!

Organizations are systems. Moreover, they don't "factorize" easily — their parts are interconnected These interconnections sometimes propagate the effects of cost cutting.

Unexpected propagation happens because the effects of cost cutting tend to travel not along formal lines, but along personal lines — that is, the relationships between people, and the perceptions and emotions of everyone in the organization.

Effects of Cost Cutting…

Effects

• Personal network disruption Waves of reductions in force tend to disrupt the network of people used

to find out how to do things — how to prepare requisitions, which procedures to follow, or where to find the answers to burning questions.

• Change-driven chaos The entire organization can descend into change-driven chaos. People

become distracted and performance degrades, especially when procedures and job responsibilities change rapidly.

•Termination-induced griefWhen groups of friends are separated because some have been terminated, the survivors enter a period of grieving. Their productivity can degrade significantly. •Voluntary turnoverWhen things get sour, people begin to fear they will be targeted next, their morale gets down. Those with alternatives elsewhere (usually the most talented) start job searches pre-emptively.

•The what's-the-point effectPeople who notice ways to reduce costs, and people who would otherwise either contribute innovations or prevent catastrophes, start to ask, "What's the point?" They begin to feel that they won't be rewarded for their trouble, or that they might be terminated before being rewarded with the next merit pay increases.

In Cost-cutting situation,One should build the capability to understand the activities and performance of the organization.

• Make the connection between cause and effect. Measure performance and monitor what is happening in your organization.

• Identify the danger signs and signals of overspending, poor allocation of resources, and other symptoms which indicate the organization needs to take corrective action BEFORE the only option is cutting into the revenue and operational capacity of the business.

Solution or finding the alternative

Thank You…