With an impending recession looming and Singapore still uncertain what impact it will have locally, companies are keeping a close eye on costs, so how can HR practitioners keep employee morale up while keeping costs down? Lisa Cheong reports.
Whenever a HR cost-cutting measure affects employees' pocketbooks, staff are often not afraid to lob criticism at the HR lead.
It is a difficult situation for HR practitioners to be caught in. On one hand, HR directors are constantly pushed by top management to reduce operating costs and to spend efficiently as well as making sure its operating costs are aligned with business needs and strategies. Yet, employees often scream blue murder at the HR department once cost reductions affect them personally.
So how can HR cut costs while also mitigating the impact on the workforce?
According to Kulwant Bardh, head of HR effectiveness, APAC, Mercer, communication is key in garnering support from staff. "Communicate often and honestly to employees, along with other strategies, to bolster employees' flagging engagement and productivity," says Bardh.
Frank Ong, executive director & senior director, human resources, Philips Electronics agrees. Not all cost-cutting measures are negative, Ong adds.
In fact, cost-reduction measures can create greater value and benefit employees in the long run. For instance, HR practitioners who outsource administration often find themselves with more time to focus on strategic areas like employees' training and talent development needs.
By sending a consistent and persistent message, employees will eventually see the value behind cost reductions, Ong says.
At the end of the day, HR practitioners agree that in order to implement change, open communication and transparency is needed to help employees understand the reasons behind reducing costs.
Here's how several companies are managing costs as well as employee expectations and concerns.
Cutting deeply but gently
Company: Lanxess
Cost-cutting measure: Restructuring
Lanxess boasts EUR 6.61 billion (S$14 billion) sales in its 2007 annual report and it is safe to say the company would not be in this situation if it weren't for HR's help.
After Bayer AG spun off Lanxess in 2004, the specialty chemicals company soon found itself in a precarious situation. The company was overstaffed, 40% of the company's business functions were underperforming and its financials were in the red.
It was up to HR to step in and help the company stay afloat and it had to work quickly as the window of opportunity was closing fast.
Cuts needed to be made and they were going to be deep.
According to Liu Zhen Rong, senior vice president, human resources, as part of the restructuring process Lanxess reduced its workforce from 20,000 to 15,000 over four years in Japan, Germany and US. However, Liu adds, not all employees were directly retrenched; some employees were phased out due to retirements, divestitures and natural attrition.
In addition to reducing its headcount, the company also reduced its compensation and benefits claims for its employees, such as removing certain allowances for their blue-collared workers which were paid above industry standards.
Cost-cutting should not be done for a "self-serving purpose" but should be looked at from a holistic business perspective, Liu says. It was important the company communicate to its employees that reducing headcount was not the only business function to be reworked. Other value chains such as supply chain, manufacturing and purchasing costs were to be overhauled as well, he adds.
The biggest obstacle to overcome with reducing headcount was convincing the labour unions whose interests laid in favour of the employees. In order to discuss cost-cutting measures with employees, Lanxess had to ensure the business decisions made had the unions' support first.
To do so, Liu spent hours and weekends with union leaders discussing the factors which led the company's poor performance and lessons they had learnt from in order to make the business a stronger one.
Establishing such a common ground with unions made persuading the minds of labour unions much easier, Liu says.
By taking these cost-cutting measures, HR has since helped the company turn around since its start four years ago. At the beginning of the process "40% of the business was loss-making or close to loss-making", Lanxess's last quarter results showed a drastic turn around with only 5% of the business units making a loss.
Setting costs aside, another challenge Liu faced when restructuring was retaining key talent, says Liu. Because the company was unable to promise its critical talent with monetary compensation, Liu says the management turned to keeping the company transparent. CEO's and other top management are tasked to explain the company's performance after each quarter results are published, explaining the financial reports and how the company is performing to its peers.
"Transparency creates trust among our people. This is very important especially during difficult times, where people can trust the direction is right and the hardship is only temporary and there is a perspective of putting the restructuring behind us" he adds.
Even though Liu acknowledges personal concern, even about his own job security, motivational techniques used by the management team helped stabilise employees' concerns and worries.
Overall, HR and the company had to ensure a sense of credibility to show it cared for its employees. In Lanxess Germany, up to 10 HR practitioners were tasked to assist employees in finding a new job.
"Why didn't we outsource it to outplacement services? Well, we decided that since the HR department knew the people best, we were the best ones to perform the outplacements."
And even though there was cost involved, the value which the company garnered by establishing trust and fairness involved is beyond intangibles, Liu says.
Cherry-picking benefits
Company: Philips Electronics
Cost-cutting measure: Flexi-benefits scheme By implementing a flexi-benefits scheme, Philips Electronics was able to contain rising benefits costs and more importantly, provide greater value to employees.
According to Frank Ong, executive director & senior director, human resources, Philips Electronics, the decision to implement a flexi-benefits scheme was not solely driven by the need to cut costs, but also to allow employees to derive greater value by allowing them a choice in exercising their benefits dollars.
For instance, Ong says, providing a dental budget for an employee would be of no value to someone who has a perfect set of teeth and would not require dental work. Employees are given greater discretion on how they want to spend their flex-dollars and hence greater value is derived.
The scheme allows staff to covert their leave days into flex-dollars which they can then use to “buy” benefits which they need, for instance, the flex dollars can also be used to buy medicinal and healthcare products.
In turn, Philips Electronics also gains from the added working hours put in by staff.
One of the challenges in implementing cost-cutting measures is addressing the knee-jerk response from employees who associate cost-cutting measures with the negative connotations.
In this case, Ong says it is the responsibility of HR to explain the rationale behind the decision. Although the company did experience a slow pick-up rate on the scheme initially, after persistent and consistent efforts behind promoting it as something of value, employees soon came around to understand the measure.
"We've reached a stage where employees have given us feedback that implementing flexi-benefits is good because they were able to use it to defray other costs, such as their children's childcare and kindergarten costs," Ong says.
According to Ong, containing HR costs helps the business to remain nimble in the light of challenging business conditions. This has also contributed to keeping Philips Electronics Singapore's HR's costs lower relative to Hong Kong or China. Ong says he has also not increased HR's cost to the business over the last three years.
"But, I always remind myself that it is not about the lowest cost, but is also about the value that employees and the business get out of HR," Ong adds.
While Ong is a strong advocate of the flexi-benefits scheme, he advises HR practitioners not to adopt the scheme blindly. For the scheme to be effective, Ong lists certain factors such as a critical staff mass, a strong administration and a deep understanding of what the scheme entails.
For smaller companies that are not able to implement a full scheme, Ong says HR practitioners should still keep a look out for areas where they can exercise flexibility in availing benefits to their employees.
"That way, this would help with employees' appreciation of the workplace," he notes.
Putting a claim to outsourcing
Company: PSB Academy
Cost-cutting measure: Outsourcing medical claims
By outsourcing its staff medical administration and claims to a third-party vendor, PSB Academy found it has managed to create greater efficiency and customer responsiveness in its overall business.
Furthermore, Magdalene Chin, acting senior vice-president of general administration says cost benefit was a derived benefit as a result of streamlining the HR processes.
Before the medical administration was outsourced, Chin describes the situation as haphazard with varying conditions and criteria for different medical schemes.
"This created unnecessary administrative work and costs, and confusion to our customers, our employees," she adds.
But even before PSB Academy could outsource, Chin said the company was looked at either hiring more staff to handle the workload or giving medical administrative and claims to its employees.
Ultimately, Chin says, the two measures were not adopted after PSB conducted a detailed cost benefits analysis which showed the measures to be ineffective.
To conduct due diligence on the third-party vendor, Chin ensured the company were up to industry standards.
The biggest challenge in implementing this change is how staff would react to it and managing their expectations. To overcome this problem, Chin says communication is of utmost importance, stressing that "it is important to communicate, communicate and communicate".
To drive the message of the benefits to staff, PSB academy held staff briefings to help explain the purpose and intention behind this change. Employees were also told what to expect during the transition process.
"Once the expectations are managed, the process of implementing change would be a lot easier," Chin says.
While it is not possible to quantify the savings derived from this measure, Chin notes it was not implemented for cost purposes alone.
On top of streamlining the process, outsourcing reduces the administration work load and leaves HR with more time to plan its human capital development. To align itself with the growth of the company in the Asia Pacific region, PSB academy can now focus on its priorities, one of which, Chin says, is growing the talent pool through regional recruitment, by employing talent from China, Philippines and Malaysia to teach in other schools.
With some of the time freed up from adminstrative grunt work the school was able to implement a job rotation system that facilitated their staff's career development and industry knowledge.
Is RPO right for you?
Even though Recruitment Process Outsourcing (RPO) can help a company save costs, money should not be the only factor when deciding to outsource parts of the recruitment process.
According to vice president of RPO for Kelly Outsourcing and Consulting group, Candy Lewandowski, while it is possible to outsource the entire recruitment function, HR departments commonly outsource administrative work. Such processes include reference checking, screening, issuing letter of appointments and the on-boarding process.
Lewandowski says RPO can primarily help save HR costs through the reduction of agency use. RPO can also help centralise the recruitment process to remove the inefficiency that occurs between various country recruitment strategies and different vendors and when there is no collaborative centralised effort around the recruitment process.
"What we find is often companies have taken a decentralised approach to managing the recruitment process so they're not taking advantage of what they can do collectively," Lewandowski adds.
HR practitioners are turning to RPO to plug their recruitment deficiencies.
Lewandowski says the time where applicants would flood a company's website is over. Instead, companies seek out passive candidates to persuade them to leave their current company and join them instead. She says internal HR departments do not have the resources to tap into all channels such as social websites to locate candidates.
Access to talent, according Lewandowski, is the key consideration and considering the pressures on internal HR departments to think and act strategically, the amount of time they spend on recruitment doesn't allow them to continually monitor the marketplace and all its channels.
This is where RPO can create efficiencies.
