Her Majesty’s Revenue, Customs & Excise managing to ‘lose’ the records of 25 million taxpayers has to be a record for ‘customer’ disservice. But is it a once-off or was the government just unfortunate in being the first high-profile manifestation of the consequences of over-zealous cost-cutting?
All cost-cutting entails a risk that, if too deep, the cuts will adversely affect the organisation’s capabilities and hence its performance. The risk is greatest when it comes to reducing people numbers, when all-too-often – the danger of losing unique elements of knowledge is not fully appreciated or understood. For this reason, cost cutting should never be undertaken for its own sake, but should rather be the inevitable consequence of improved performance that results from continuous improvement initiatives. Some might argue that this is always the case, but I know from personal experience that just isn’t true.
The fact is that the increasingly competitive market has turned cost-cutting into an inverted arm’s race, where cost reduction has become a treadmill for executives keen to show their management ‘fitness’. Unfortunately, this mindset has important side-effects on the people who work in the organisation, often with unforeseen and unintended consequences.
Invariably cost cutting initiatives entail some job losses, and, even if these are delivered through ‘natural attrition’ rather than enforced redundancies, the prevailing culture becomes one of fear. Steve Jobs said, “The only way to do great work is to love what you do” and it isn’t possible to love what you do if you are fearful. You cannot be happy in your work if you are afraid, and if you cannot be happy in your work, you cannot love it.
Consequently, in such an environment people either become reluctant to show initiative, or else try too hard to prove themselves. If the former, they will not move out of their comfort zone or do anything they have not been trained to do or that is not in their ‘job description’ – something that is increasingly likely if the people who did it previously are no longer around. If the latter, they may well attempt something that they shouldn’t. So the risks of omission and commission, which could have a serious impact on the long-term sustainability of the organisation, both increase.
In such an environment it is highly likely, almost inevitable, that someone, at some stage, will fall into such a trap and the organisation pay the price accordingly. To date, however, the instances where this has happened appear few and far between, and the consequences have not been particularly calamitous. Whether this is due to an ability to disguise the cause, or through good fortune or effective risk management is an open question.
This cost-cutting mindset, however, has clearly, perhaps inevitably, also spread to the public sector. Unfortunately, the civil service is not a pressured environment, or, as this instance clearly shows, one in which risk management flourishes and, as a result, the risks here are even greater and the consequences more extreme.
Yet, it does not matter whether the organisation is in the private or public sector, the consequences for the people are equally devastating. There is an immediate outcry, derision for the organisation involved, the stigma of association, a climate of suspicion and a witch-hunt for the people responsible. All this makes it an even less pleasant place in which to work and compounds the problem, and increases the risk.
Not only is cost-cutting strategy very much a relic of the ‘command-and-control’ management era, but clearly one any executive team should approach with extreme caution.
Both cost cutting and the previous article on Killer Service had me thinking about the fact that business actions often create change in the organisation and that we are cautioned to take care of our people at all times. However in times of change we need to take special care. Why?
Changes inevitably cause discomfort for the people affected by it. This discomfort often translates to lower productivity and in extreme cases, loss of valued employees.
Changes often affect the power structures in the organisation. This may generate strong resistance from middle and upper management.
Therefore one of the ways management should take care of its people is to apply good change management practices whenever they embark on cost cutting, process or technology changes designed to improve customer service and many other changes they may pursue in the quest for sustainability and growth.
Research carried out in the past 7 years has shown that barely 50% of managers have the skills necessary to play their key role in managing change in themsleves or in their people. Perhaps it is time that this discipline receive more attention across all organisations and business schools. In the meantime, there are a few good methodologies, grounded on research, that can help managers improve their skills in managing change. This will help them achieve the objectives of their chnages without paying the heavy price of losing key people or productivity. People change management is a human way to get hard business results.
You make some valid pionts about cost cutting and change management.
Especially with the larger public and private sector organisations, cost cutting exercises appear to happen with the expectation that existing employees can manage the work done by those that are gone. Rarely is this the case, unless a considered analysis of the business deliverables are undertaken and steps taken to minimise the impact.
The usual result is lack of employee engagement, working to rule, tasks not getting done, and employees not recognising the criticality and importance of various tasks.
Perhaps this event is a wakeup call for organisations to value their employees – it will be interesting to see the reports of the investigations into this incident.
My recent experience of being involved in a turnaround of a public service organization showed 4 interesting things:
1. Cost cutting is usually not the appropriate remedy as most costs are fixed. Revenue maximization is more important.
2. Most assets have a finite productive capacity – e.g. 1,000 widgits per hour. However, people are an asset that has unlimited capacity to produce – especially if they are motivated to think of ways to do things better. Machines cannot do that yet.
3. As regards service in the public sector, most customers have such low expectations that small service improvements can quickly change customer attitudes for the better. This in turn motivates the staff to improve things further!
4. If people are such a rewarding asset, why are we so slow to invest time and money in them? Often the best ideas come from the people at hte coal face – it is just that no one asked them.