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Death by a thousand cuts

Slashing costs a good way to destroy otherwise healthy firms
Cutting jobs
Parents are so desperate to help their adult children start their careers they are willing to gift an average of $24,000 to get them out of the house. Shutterstock

By Todd Humber

This just in from the not-so-shocking news desk: Businesses like to cut costs. This not-so-new phenomenon is not only sustaining itself, it also appears to be picking up steam. That’s not good news for HR, the organizations or society as a whole.

Executives at these firms seem to be blissfully unaware that cutting your nose to spite your face isn’t necessarily the best tactic.

For organizations struggling to survive, cuts may be justified to stem red ink. But far too often otherwise healthy organizations go down this road in mystifying exercises. It’s a surprisingly effective way to damage or even destroy an otherwise profitable and well performing business or division.

I’m fresh back from attending the National Safety Council’s annual conference and tradeshow, held this year in Indianapolis. In numerous meetings and conversations, a bit of a theme came into focus.

One firm, based in Texas, was quite upfront that their business had taken a bit of a beating in recent years. It had a healthy bottom line, and was growing, but management decided they were spending a little too much on staffing and marketing, so it slashed budgets on both counts to drive profitability even higher. Fast forward five years, and business and profitability are down significantly.

“We cut a little too much, too fast,” an executive candidly told me. “But we’re making the business case for growth now, and that means adding bodies and adding to the marketing budget.”

Another multinational company based in the United States, with massive global operations, had taken its eye of the Canadian market. It cut its marketing spend significantly, and — also quite candidly — admitted it was losing market share to competitors north of the border.

You don’t have to look far in the business pages to find similar stories, though job cuts are usually the only ones that make headlines. Toronto-based Home Capital Group slashed 65 full-time jobs on Oct. 2 in a bid to reduce spending by $15 million.

Brandon Stranzl, the executive chairman of Sears Canada, blasted his employer for its decision to sell 11 of its best performing stores and turf 1,200 employees. According to the Globe and Mail, Stranzl said those 11 stores would have contributed more than 90 per cent of earnings in the first year of his plan to keep the iconic retailer afloat. But the current owners seem more interested in selling off assets than keeping Sears a going concern.

More random musings from an Oct. 3 scan of headlines: Cisco cuts 310 staff from its corporate headquarters in California. Britvic closed a factory in Norwich, U.K., tossing 240 people out of work. Hewlett Packard plans 5,000 job cuts.

The savings done in more subtle ways, that don’t make headlines, can be just as – or even more - damaging. Some firms refuse to replace a full-time employee who goes on parental leave. Or by quietly reducing headcount through hiring freezes and re-examining roles whenever there is voluntary turnover.

But it goes far beyond saving salaries. If I gathered every HR professional in the country into one room, and asked those who had cut training, recognition, teambuilding or benefit budgets in the last five years to leave the room — well, I'd have an empty room.

This penny wise and pound foolish attitude makes great HR nearly impossible to practice. And if we can be altruistic for a second (and there’s a four-letter business word), it’s not great for society as a whole.

If you have young adults in your family, odds are they’re struggling to launch their careers. I thought I had it rough in 1996 when I headed out the door with resumé in hand. Now, it’s nearly impossible to find anything beyond a McJob. How bad is it? Well, we know 42.3 per cent of Canadians in their twenties are still living at home, according to Statistics Canada data.

Parents, tiring of the inability of this generation to find full-time work, are so desperate to help them get their adult lives started that they are digging deep into their own pockets to prime the pump — they’re willing to give an average of $24,125 to help them move out and start their lives, according to an Angus Reid poll of 3,021 randomly selected Canadians commissioned by CIBC. Well-heeled Canucks are really ready to open their wallets to get the kids out of the house — those making more than $100,000 a year plan to give more than $40,000.

But that’s the reality in today’s “gig” economy. Not only do I despite that term, I dislike the concept. There’s measurable value in hiring full-time employees, paying them well and providing benefits. That is the business case for good HR — for decades now, CEOs have been paying lip service to the adage that “people are an organization’s most important assets.”

No argument there. So step up, invest in them and provide the income and security you enjoy. They’ll return the favour in spades.

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Todd Humber

Todd Humber is the publisher and editor-in-chief of Canadian HR Reporter, the national journal of human resource management. Follow him on Twitter @ToddHumber
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