Cost Reduction: With or Without Headcount Reduction

Cost Reduction: With or Without Headcount Reduction

Roselyn SandsThomas McCabe

March 2013 Cost Reduction: With or Without Headcount ReductionPage 2

1. Context van de opdracht

2

(Remember Darwin?)

Survival of the Fittest:How « fit » are you?

Do you « work smart »:Right person/Right Skills/Right

Place/Right Time?


68%of organizations

are under severe pressure to reduce HR costs* 1 in 4

Organizations truly understand the full HR cost

baseline*

25% reduction of operating

costs are typically achievable on large scale HR transformations*

“Fitness” Requires Cost Competitiveness

* Source: Corporate Leadership Council 2011


‘Visible’Human ResourcesCosts

‘Invisible’Human ResourcesCosts

Added CostsLost ProductivityLost RevenueCapital Utilization

Staff Time Spenton Human ResourcesAdministration

Benefit Coverage for Ineligibles

Lost ProductivityDue toAbsenteeism

ExcessiveVendor Fees

LostRevenueDue to LackOf Training

MisalignedCompensationPrograms

PayrollErrors

Human Resources / Payroll CostsProcesses, Policies, Program & Service DeliveryBudget

IneffectiveHuman ResourcesService Delivery Model

Examples of Human Resource Costs


HR Cost Reduction with or without headcount reduction – That is the question!

HR cost reduction

Cost of employment Resources

► Salary costs

► Tax efficient compensation

► Change pay mix

► Cost effective HR policies

► Redundancies

► Review working practices

► Refocus employees

► Address absenteeism and turnover

Employment costs HR functional costs

HR service delivery Vendor management

► Policy and process efficiency

► HR structures

► Roles and responsibilities

► Compliance versus discretionary activity

► Value of services delivered

► Consolidation of multiple vendors


HR Costs

Ideas Opportunities

Reduce overtime cost ► Address working patterns and organization to reduce overtime use

Reduce social security taxes through / of tax effective compensation

Cost effective compensation design:► Benefits in final (car)► Profit sharing agreements► Savings plan

Think benefits too (not only compensation) Evaluation of current benefits leading to social security savings:► Lunch vouchers► Supplementary pensions► Laptop/Mobile phone/Internet

Cost efficient HR policies Evaluation of current HR policies to ensure they take advantage of tax effective planning opportunities:

► Hiring policy► Termination policy► Global mobility policy


Human Resources

Ideas Opportunities

Reduce contractors and temporary headcount ► Undertake analysis of non-permanent headcount► Review cost saving opportunities and understand any

resourcing issues that might arise

Introduction of innovative working practices Review of working time arrangements to assess opportunities to implement flexible or reduced work hours or career break

Refocus employees

Redeploy employees in areas where shortage of resource needs.

► Review resourcing needs and roles and responsibilities to understand where there may be redeployment opportunities

► Assess where activities and training may be required to prepare for redeployment

Address turnover and absenteeism issues ► Understand reasons for absenteeism and employee attrition (eg, leavers interview)

► Develop mitigation activities to address these issues

Redundancies Headcount reduction Careful planning and preparation is essential► Information and consultation requirements► Calculation of budget for redundancies costs ► Readiness of the business to deal with an up turn in the market


HR service delivery

Levers Hypotheses Opportunities

Introduction of efficient and effective HR processes reflecting best practice

Back-office efficiencies and savings could be achieved in the HR function through:

► Policies and process: efficiencies and effectiveness in the delivery of HR processes with increased automation and consistency where appropriate

► Structure: Changes to the way the HR function is structured and located including shared services and outsourcing options leading to cost savings through wage arbitrage

► Roles: Moving to best in class HR to FTE ratio and increasing line management responsibility leading to headcount reduction

Review of HR function including:► Feasibility study for introduction of HR shared

services, outsourcing and relocation of processes to low cost locations

► HR process assessment to review effectiveness and efficiency against best practice

► Assess HR non-headcount spend to review value for money and ensure the HR function is optimizing return on investment

► Review of current HR structure and roles and responsibilities. Comparison against internal and external benchmarks and ensure work is being undertaken at the appropriate level

Alternative HR deliver models including SSC, outsourcing and low cost locations

Implementation of an appropriately structured HR function

Compliance versus discretionary activity

Quick win cost reduction opportunities through ceasing all non business critical activity

► Review non headcount costs and assess where non business critical activities are occurring

► Undertake ROI assessment to ensure it is delivering against objectives


Manage HR vendors effectively

Levers Hypotheses Opportunities

Evaluation of HR vendors

Evaluation and proactive management of HR vendors may lead to a reduction in costs through:

► Consolidation of multiple vendors► Lower cost providers► More effective / efficient service

HR vendor review (including expatriate relocation) – efficiency and effectiveness

Consolidation of multiple vendors

Organisations commonly use multiple HR vendors across function and operating companies. Making the most of potential economies of scale to consolidate providers can provide some substantial cost saving opportunities.

► Review HR vendors in place across different groups

► Consider length of contracts in place including break clauses and potential penalties

► Understand interest in consolidating providers

Documents

Cost Reduction: With or Without Headcount Reduction