Coping with a recession
One of the great things about the FDs’ Forum is that it features both the inspirational (such as Olympic rower Ben Hunt-Davis’s talk on motivating teams) and the practical. In the latter category this year were a presentation on sustainable cost reduction and Kevin McCavish’s “Reducing labour costs in a declining market.”
McCavish, a partner at law firm Shoosmiths, laid out some truly creative options for managing employment costs. For example, while redundancies are clearly on the agenda for many businesses, smart FDs are working with their HR functions to find ways of using workforce flexibility – shorter hours, parttime work, sabbaticals – to reduce costs while ensuring skilled and experienced employees are kept on the payroll.
But the bulk of his advice related to redundancies. The key is that proper procedures are followed. Failure to do so can result in hefty awards to staff who have been treated unfairly. “So listen to your HR department when they talk to you about process,” he warned. And ensure you have performance appraisals in place so that if you do have to lay people off, you have solid criteria for choosing the unlucky ones.
Simon Brew, a partner at Deloitte, asked whether sustainable cost reduction was possible – is it myth or reality? He highlighted recent research showing that more “invasive” cost reduction programmes – instead of cost savings sought as part of ongoing change projects – were now coming to the fore. “But our concern is that companies are setting relatively conservative goals,” he warned.
The problem is that most cost reduction projects overestimate their own effectiveness (Brew says you should target at least 30 per cent more savings than you need). Even those with board-level support run aground because the sponsors aren’t able to provide the kind of focus needed to maintain momentum with middle managers. And many firms look for short-term reductions in cost that, in the long run, fail to cut outgoings.
A better way, Brew explained, is to identify areas that need attention – customer relationships, for example – and re-design the processes to strip out costs that fail to deliver truly beneficial outcomes. “By being proactive, you can use the need to reduce costs to reconfigure the business to adapt to new market dynamics,” he said.
Brew finished by highlighting an approach that could have summed up many of the sessions on the FDs’ Forum 2008. “Finance needs to arrive at a single version of the truth quickly, so that everyone knows what is required and you can eliminate undue optimism and pessimism,” he said. “Explain clearly what you plan to do and how people can make their contribution to that mission.”
Typical, then, of the excellent advice available throughout the two days of a Finance Directors’ Forum that set out to stiffen the resolve of FDs under pressure – and succeeded.
