It never fails. As soon as the economy takes a downward turn and annual revenue projections are lowered, the first place, after reducing staffing projections, companies looking to reduce operating costs is employee development initiatives. I can’t tell you how often, during my more than 20 years in leadership, executive leaders have challenged me to reduce employee training and development dollars for my department or division. And, whenever such an extravagant request is entrusted to me, I prepare for battle.
Do you need to reduce your operating costs? Increase your employee development spending!
Don’t get me wrong, I don’t enjoy confrontation! In fact, in most problems, I prefer to look for compromising alternatives. But I strongly believe in the value of continued employee education and development. Therefore, when it comes to reducing the costs required for development initiatives, my strong convictions generally lead me to seek the latest advancements in corporate battle teams. So let the jousting begin!
In a desperate search to lower operating costs, top executives are looking for ways to reduce personnel costs. If the number of employees is not reduced, it will significantly reduce its current growth rate. Of course, top executives target other budget categories, but staffing generally has the most influence on a company’s operating expenses, particularly in large, production-oriented companies.
But this is where friction occurs most often. Unlike top executives, middle managers are constantly pushing for additional resources. They never seem to have enough employees to meet the demands of the business. Therefore, your motivation is to maintain current staffing levels, while justifying the need for additional resources. As a result, requests for downsizing generally meet resistance from middle managers. Therefore, to avoid cutting staff, managers often sacrifice their budgeted dollars allocated to other areas, particularly employee development. When that happens, the whole business suffers!
An investment of $ 80,000 produced a return of $ 200,000!
The department vice president asked Lauren, a contact center director for a growing manufacturing company, to lower her expense forecast for the upcoming budget year. His vice president explained: “Although we continue to see significant growth, our average sales have declined slightly for the third consecutive quarter. This is mainly due to fluctuating trends in consumer purchases. Therefore, to ensure we meet our projections of In earnings for next year, our combined operating budget needs to be cut by $ 1 million. So I’m looking for $ 100,000 of that to come from your contact center budget. ” Without hesitation, Lauren’s VP stated, “I see you forecast $ 80K in employee development initiatives. Eliminate that, and you’ll only have to lower your staffing projection by one full-time employee (FTE) to meet the goal! ! “
It seems so simple, right? Wrong! And here’s why!
Like most department leaders, Lauren was asked to cut her budget forecast, which she already considered aggressively tight, even more. Understanding that she was on the hook for $ 100K in cutbacks and her employee development dollars were at risk, Lauren had to get creative!
Lauren realized the value of providing continuous development for her employees. She had seen favorable results in the past, particularly with members of her leadership team. But now he faced a difficult dilemma. Reduce your staffing forecast by three FTEs (equivalent to $ 120K) or postpone your employee development initiatives for a full year. With the exception of the workforce, which contributed the majority of its annual operating expenses, the $ 80,000 allocated for employee development stood out as a tall, ugly weed begging to be cut down by the financial sword of its vice president. . And there was no question that his vice president was ready to swing!
After intense thought and planning, Lauren presented her revised budget. Lauren’s VP called after reviewing the reviews and said, “I noticed you lowered your staff growth projection by five FTEs, but you retained your $ 80,000 employee development allowance. How do you propose to handle the next business growth? anus?” Lauren responded, “My $ 80,000 allocation will be used to create and implement two employee development programs; one designed to improve process efficiency and the other to improve quality. The efficiencies my department will gain after completing our new process improvement training programs will increase productivity by 10%, equivalent to the production of two employees. ” Lauren went on to say, “In addition, our new quality assurance program will allow us to reduce data entry errors and rework by 15% – equivalent to three more employees.”
The Economics of Continuous Improvement!
Lauren’s $ 80,000 investment in employee development programs resulted in total efficiency gains equal to five FTEs. With an average annual salary of $ 40,000 per employee, Lauren’s programs achieved $ 200,000 in cost avoidance (5 FTE x $ 40,000. This not only generated a return on investment (ROI) of $ 120,000 (benefit of $ 200K – spending $ 80K) to In short, it also reduced Lauren’s annual employee growth rate by five FTEs. In other words, it absorbed new business growth without adding additional employees. Most importantly, the new programs had an impact. extremely positive on customer satisfaction and quality assurance ratings.
Very often, instinctive decisions to reduce operating expenses by delaying or eliminating employee development and incentive programs are met with substantial increases in customer dissatisfaction, decreases in product and service quality, as well as tendencies to the drop in employee satisfaction and productivity. All of which results in higher operating costs and lower profits.
Unfortunately, many companies do a poor job of anticipating these additional costs and an even worse job of measuring them. Often times, the true risk of its financial impact is overlooked during the planning and budget approval stages. But one thing is for sure; the negative impact eventually shows up in the bottom line.
For companies to truly realize their full profit potential, they must stop viewing their employees as negotiable financial control devices and start viewing them as the valuable resources that they are. When properly trained, guided, and inspired, employees have the potential to save businesses far more than they actually cost. Combine an effective strategic plan with modest investments in technology and employee development, and you’ll find healthy companies that make sustainable gains in customer satisfaction and retention, as well as profitability.
Companies must focus on continuous improvement to survive in today’s competitive market. If companies control the costs associated with the successful delivery of products and services by seeking constant improvement, they can be competitive and profitable. As Abe WalkingBear Sanchez states, “A business manager who does not focus on improvement becomes a manager at best and a bureaucrat at worst.”
“What Top Business Executives Don’t Know and How They Can Hurt Your Business!”
Therefore, as the current economic climate continues to resonate in the minds of consumers, companies will need to become even more efficient, financially smart, and customer-oriented to:
o Increase new sales
o Increase repeat sales
o Improve cash flow
o Increase customer satisfaction and customer retention levels
o Reduce the cost of doing business (for themselves and their clients)
Let’s face it … there are many creative ways that companies can make a profit. They may scam employees into their retirement plan or not fully fund the plan … sound familiar? They can also make a profit by deceiving customers and suppliers … can you think of a company?
If you are a business executive or business owner (or aspire to be one) who is serious about increasing your profitability, I encourage you to read our FREE 20-page special report entitled “What Top Business Executives they don’t know and how it can hurt their business. ” This report will help you significantly improve key areas of your business, leading to higher profitability.