Given the economic environment and increasing competitive pressures — factors that almost every company faces today — many are seeking to optimize costs, cut costs and improve profitability. Alas, cost optimization without organizational change will not create a sustainable cost advantage. The typical “ballast overboard” approach, which is usually used in the “sudden” onset of a crisis or recession, affects only the amount that makes up the costs, not what these costs are spent on. Costs almost always crawl up again after a threat has passed or diminishes, because the company’s resource allocation policy has not changed.
One of the most commonly chosen solutions, and often the only one for some reason, is to reduce personnel and its costs. As a measure to restore order and a tool to boost performance in the short term, this solution is quite effective. At the same time, it raises the question — why is the company overstaffed? In modern companies, the share of personnel costs rarely exceeds 20% (except for some retail, services and high-tech), so if you reduce staff by 10%, marginal profitability is unlikely to increase by 2%. Additionally, the decision to fire specific employees is made by line managers, and they are not always guided by the main goals of the company. In general, this typical approach to cost trimming leads to long-term losses.