02 Sep 5 advantages of employee-driven cost reduction programs
We’ve all heard the traditional cost reduction programs. Someone does an analysis of the current situation and benchmarks your company against its peers. Conclusions could be something like: Your marketing is 10% of sales and your peers spend only 9%, you can save 1%. This conclusion is usually translated into FTE reductions and other top-down “slice ‘n dice” cost reduction initiatives. Now there’s a new approach: bottom-up, employee-driven cost reductions, and these have several advantages.
Limited business risk
Firstly, employees generally know their jobs well. This means they can also see what can be changed in their jobs without putting their output at risk. We’ve seen that many times employees can come up with savings ideas that have significant impact but don’t put their job quality or quantity at risk. This limits the overall risk to your business.
Higher project success rate
Secondly, an employee-driven cost reduction program results in a large number of (usually small) initiatives. This means that the risk of failure is also spread over many smaller initiatives which increases the probability of overall project success.
No FTE reductions
Thirdly, normally employees don’t tell the organization to fire their colleagues, so they won’t come up with initiatives resulting in the firing of their colleagues. Not firing people also saves you the trouble of having to work with works council and other organizations. Generally employee representation applauds employee-driven cost reduction programs because they save layoffs.
Tapping into hidden potential
Fourthly, allowing your employees to contribute cost reduction initiatives means going deep down into the organization, something a consultant or management can’t do. However with modern technology it can be done, every employee can be given a voice on how to improve the company. We’ve seen employees come up with ideas that surprised top management. Employee-driven cost reductions taps into a previously hidden potential.
Finally, a big advantage of an employee-driven cost reduction program is the involvement of the employees themselves. We’ve seen that employees become more aware of the costs they actually cause. They also feel that they now have a possibility to contribute to the success of the company. In projects at Treeveo we’ve seen companies’ cultures change and employees becoming more cost aware.
So next time you want to reduce costs at your organization, consider asking your employees.