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Cut Costs, Not Capabilities
published by , on 23/05/2009

Are companies done cost-cutting and preparing for the economic upturn? According to two major US studies, the answers are yes…and no.

Watson Wyatt’s April 2009 Update: Effect of the Economic Crisis on HR Programs offers these key takeaways:
• Cost-cutting plans for the next 12 months have decreased across the board.
• Organizations are shifting to alternative cost-cutting methods such as reducing hours through mandatory shutdowns or reduced workweeks.
• Pay increases are down in 2009, but employers expect a rebound in merit increase budgets in 2010.

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The Hewitt Associates April 2009 Cost Reduction & Engagement Survey concluded:

Most companies believe that the nation’s economic upturn will begin by the end of this year or the first quarter of next year and that their own organization’s financial improvement will coincide with that upturn. In the meantime, although significant cost reduction efforts have been undertaken, many are still contemplating additional cuts. Many companies feel that the manner in which they have undertaken cuts may be too short-term focused. They are also seeing declines in employee trust, and worry that they will not have the talent they need when the economy recovers.What are the primary risks related to the method with which your firm is implementing these cost reductions?

Top 5 Risks Mentioned:
• Employee engagement/morale
• Responsiveness–ability to ramp up fast enough when the economy turns around
• Turnover/retention
• Negative impact on current work outcomes (productivity/customer satisfaction)
• Loss of key talent

It’s a dicey time which requires careful consideration of the effects of corporate actions on both the immediate need to curtail expenses and the longer view of corporate sustainability and competitiveness. Now more than ever the direct alignment of talent to business goals becomes critical.

Communications and utilizing talent management practices that promote employee engagement and productivity are key.

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