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In fact, the projected data for advanced economies look even more discouraging, with the World Bank predicting 0.5% economic growth in the U.S. in 2023, which is almost 2% lower than the previous iterations. This leaves experts scratching their heads on whether we’re imminently running towards yet another big recession, or not just yet.
Team cuts are imminent, aren’t they?
Supposedly driven by the lingering downward economic spiral, thousands of businesses across various market verticals (mostly tech, media, finance and healthcare) announced huge staff cuts back in 2022, and this neverending firing streak continues.
Here are just some of the most stunning numbers.
In January 2023, Sundar Pichai, the CEO of Google and Alphabet, announced the company’s plans to lay off 12,000 team members. Disney is planning to cut back its workforce by at least 7,000 jobs. Amazon will be letting go of 18,000 employees. Goldman Sachs will say goodbye to over 3,000 employees, Philips will be cutting over 6,000 jobs worldwide, and news of mass layoffs just keep coming. Overall, over 125,000 people were already laid off in 2023 by the tech companies alone, per layoffs.fyi.
However, is the global market slow-down actually the key factor, influencing the massive workforce cuts? While the need to cut spending may be the common ground, in a more nuanced context — not so much.
Namely, a lot of the companies in the tech sector, like Peloton or Zoom are facing overstaffing challenges, fueled by their exponential growth dynamics during the Covid-19 pandemic, which has turned out virtually impossible to sustain upon its decline.
Meanwhile, in the real sectors, like the automotive industry, some companies, like Jeep Cherokee explained their plant is idling amid rising electronic vehicle (EV) costs.
But most surprisingly, some commenters presume many companies are just “following the herd” in their market niche. In plain words, their assumption is, while the widely-predicted recession forces businesses to tie their belts in one way or another, laying off employees is just their go-to solution, which is seemingly working for their competitors. As business professor Jeffrey Pfeffer told Stanford News, “They are doing it because other companies are doing it.”
And the truth is, a massive workforce cut doesn’t actually save money in a short-term perspective (imagine the severance pay volumes), and can even flatten the business development in the case of mid-sized companies and small startups.
How to cut spending without laying off your team
In view of the tracked decline in economic activities, in some ways fueled by the lingering supply chain disruptions, and the sharp increase of inflation rates, cutting operational spending seems to be a reasonable idea. Not only can it remove extra pressure from business owners’ shoulders amid uncertain times, but also free up extra resources to fund the growth areas.
And, as mentioned above, letting go of your team members is hardly the best choice (in case you’re not overstaffed, of course), so it’s crucial that you eliminate the latter risks from the equation right away.
So, how do you determine that you’re overstaffed?
Essentially speaking, you need to analyze the average manager’s span of control in your company, or in plain words, how many people are reporting to each of them. This number can be different depending on the type of firm or industry. Anyway, the common ground is that if it’s lower than 5-6, the organizational structure most likely has too many levels, with the average optimum management-to-employee ratio currently ranging from 1:15 to 1:20(25).
Suppose, you don’t have apparent issues with the tall span of control, and the overstaffing risks are not your business case. Consider the following checklist for evaluating possibilities to lower the overall company’s spending without taking a toll on your business processes and cutting the team:
Quite predictably, even small startups with limited funding usually use a bulk of paid SaaS solutions in their business routine (e.g. from a CRM and task management tools to a mere G Suite and accounting software).
And while the importance of such tools is hardly questionable, their actual selection, as well as the pricing, sometimes is. What I’m saying is that even though the high-quality product does cost money, negotiating a discount happens to be a far more rarely utilized option than one might imagine, which is a huge miss.
And if you’re paying for two similar management tools, with minor differences, perhaps, the use of a more advanced version of one of these instead will be actually cheaper, especially in the long run.
Office space rent
Even though the end of the acute period of the Covid-19 pandemic has stimulated many businesses to return to offices, chances are opting for a hybrid office may help reduce spending costs quite a lot.
Let’s do some quick math. Imagine you had 10 people in the office on a permanent basis, and consider rearranging the office space to a commonly-used area, which can fit 5 people at a time. This will cut the desk space in half, as well as reduce the required office space for the communal areas (like kitchens, breakout rooms and meeting rooms) by at least 20%.
Given that the average space per employee was estimated at 75 – 150 sq feet in the pre-pandemic times, as per JLL research (50% deskspace and 50% commonly used areas), the change of the office type from an offline to a hybrid one in the example herein can help to reduce the required office space by at least 200 sq feet.
In plain money, this could potentially save you around $7,000 monthly in office rent in Seattle, for instance.
While keeping your optimal team as is will definitely help streamline operational processes, you might consider limiting the hiring process for new employees, potentially needed for your newly-developed business projects.
That is, if you’re hoping to launch two new products in 2023, perhaps, a wise idea would be to select and prioritize the release of just one during a downturn, in order to spare financial resources. Another way to cut spending on human resources would be to readjust the rewards and recognition programs for employees, i.e. making them more tailored to particular business KPIs. In such a way you’ll be able to keep your team motivated, without overspending money on yearly bonuses across the board.
Ultimately, it’s up to each business owner to make their decision on how to prioritize spending and whether to cut their staff, or not during a downturn, but navigating a company amid uncertain times usually requires a strong team, so why risk losing it, having invested time and resources into building it? That is the question.