Businesses must make profits regardless of the global economic crisis or local market trends. This means investors must develop effective plans to handle any challenge that may interfere with profit generation. Most of these challenges occur within their businesses and are easily controlled through proper planning. However, some may be beyond a company’s ability to control them and force it to experience slow performance and low returns. This essay proposes a scaling module that will allow the Creative Colors Company to implement and manage its cost-saving measures.
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This company is located in the State of Washington and has an online shop and three retail outlets through which it sells art supplies. Also, it has training sessions in ceramics, graphic design, sculpturing, and painting. Even though there is a steady enrollment in art classes, this company is experiencing an increase in inventory costs, low sales, and a decline in revenue collection. This shows a dangerous trend that should be controlled immediately to avoid plunging the company into bad debts. Therefore, the move by the owner to implement cost-saving measures is welcome and comes at an appropriate time to prevent a looming disaster
Implementation of Cost-Saving Measures
Down Scaling Managerial Positions
This company operates three retail shops, an online shop, and a training center for arts. This means that it has at least three managers, each responsible for each department. This company requires a lot of money to pay these managers their salaries and monthly allowances. Even though it is their right to earn decent wages, the sales trends exhibited by the stores are indicators that there is no bright future for this company. When a company has high operational costs and low profits, it means it is operating beyond its ability to sustain its activities. It will collapse if immediate measures are not taken to address the situation.
Scaling managerial positions is not an easy task since it involves senior workers who know the secrets of a company. This means the company must develop effective strategies of ensuring that the sacked employees do not become its enemies (Brown 2009). However, regardless of the outcome of this activity, it is necessary to note that it is better to have a company enemy than to have the company collapse, and all workers lose their jobs. Also, the sacked employees will not be offended by this step since it is a positive move towards rescuing the company from collapsing. The following are some of the ways the company may use to downscale its managerial positions.
First, there is a need to restructure the roles played by managers in all departments. It is important to note that the company has three retail shops, an online shop and an art class. The managers in these three retail outlets perform similar roles since they handle identical goods. Therefore, their roles should be restructured to ensure there is only one general manager, and the rest should be assistant managers. The company can combine the functions of all managers and develop two managerial structures that will ensure the company has one manager and five assistant managers instead of five managers.
The general manager should play supervisory roles while the assistant managers coordinate all departmental activities. This will ensure that all current managers remain at their positions, but they will play fewer roles compared to what they were used to. This is an effective cost-saving measure due to the following advantages associated with it.
First, there will be reduced travel expenses associated with the movement of managers from one department to the central office. This company seems to incur unnecessary costs in travel costs since all managers have similar powers and must show that their departments are active through making regular trips from their locations to the primary office (Brown 2009). However, when all heads of departments are answerable to one manager, it will be easier to manage travel expenses.
Secondly, a reduction of roles played by managers means that there will also be a reduction in salaries allocated to them. Therefore, their salaries will be reduced, and this will help the company in cutting down unnecessary expenses.
Thirdly, when these managers are allowed to operate within their departments as heads of these sections, this will create room for the owner to assess whether the department needs a manager or not. It is necessary to state that even governments cannot start retrenching their civil servants without thinking of the implications of such actions on their operations. Therefore, this step will not immediately lead to the sacking of managers but will give clues that will guide the owner in deciding which positions should be scrapped.
Lastly, this process will mean that managers will be allocated more active roles in the company’s operations, and this may result in the identification of the causes of reduced sales. Some managers may be lazy, and this means they may not be aware of what is happening on the ground (Liedtka 2011). They may be confining their operations to office calls, emails, and reports without proving the accuracy of the reports they receive from the fields. Therefore, the company may be experiencing losses due to laxity on the part of managers.
This company may also decide to do away with permanent employment of managers and sign short term contracts with them. This will be an effective way of sacking workers without necessarily making them angry or subjecting their colleagues to tension. A work contract describes the nature of work, payment, and time within which the contract is valid. It will be risky to start sacking workers without having proper plans to fill their gaps (Brown 2009). However, this plan will ensure that while the managers are working under short term contracts, the owner will access their contributions to the company and decide whether or not the company can survive without them. The following advantages are associated with this plan.
First, it is cheaper compared to permanent employment since the company does not have to pay allowances like traveling, entertainment, and health insurance. These are usually the bulk of regular expenses that a company must meet despite the amount of revenue generated. Therefore, once these costs are eliminated, the company will have fewer expenses, and the little revenue generated will be used to boost production processes.
Secondly, this plan will ensure that all managers are recruited once there is the need to have someone to fill the available vacant positions. A manager will not be employed because a store requires someone to run it but because there is work to be done by someone. This means this plan will indicate a shortage of manpower in a location, and then the owner will decide whether or not to employ a manager.
Thirdly, this plan is convenient and saves money that is usually used in unnecessary expenses. Managers constitute most of the highest-paid workers in this company. Their salaries and allowances are usually huge, and this becomes a source of losses to the company. However, this contractual employment will be based on this company’s ability to pay its workers. The owner cannot employ a manager if there is no money to pay the existing worker or cater to the new manager. Therefore, it is an informed decision based on the needs of the company and the availability of funds. The company will identify the time when to employ additional managers based on the revenue generated and the expenses incurred within a trading period. The need to employ additional managers will be evident when there is an increase in production, sales, and profits.
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Lastly, the company may decide to hire managers to perform the roles played by current managers. Not all managers need to be taken through a smooth sacking process if there is a need to revive the company. The owner can decide to close the company and open it after a short time and recruit new employees. This means that all existing workers will be sacked and new ones recruited. However, since the company is experiencing low sales, it can start by hiring managers on a part-time basis until when it can sustain their pays (Brown 2009). This will mean that it will incur fewer expenses than when it employs permanent managers.
Interviews are conducted to select the best candidates to fill vacant positions in companies. This company can adopt this alternative and ensure that it recruits essential staff to fill its vacant positions. It is necessary to understand that this process will be conducted fairly to select managers that are qualified and able to perform their duties better than others.
The interviewers will base their selection on skills, education, experience, performance record, and association with other members. The achievements of employees and contributions to the company may also play significant roles in selecting candidates suitable for these positions. However, it is necessary to understand that the company must first identify key managerial positions that must be filled before advertising them. Therefore, when applying for these jobs, the candidates will know that there are only two or three positions available for them; therefore, the best two or three candidates will get the job while the rest will be forced to look for jobs elsewhere. The fact that this company has decided to cut down its managerial positions by 25% means that there is a serious challenge facing it in terms of unsustainable expenses. Re-interviewing will have the following advantages to the company.
First, the company will have specified and outlined job descriptions for the officeholder. This means that it will have the opportunity to scale down the roles played by managers; therefore, it will eliminate unnecessary roles and reduce the powers of the managers and their roles in this company. This will become a guiding tool to reduce the salary scale for managers since nature will inform them of roles each of them plays in the company. Secondly, an interview is usually designed to inform potential candidates about the number of vacancies available. Therefore, this will be a good guiding tool to ensure that the company employs a fixed number of employees. For instance, if the company has 100 managers and wants to reduce this number by 25%, it will advertise for 75 vacant positions to be filled.
Lastly, this company will have an opportunity to negotiate with its employees about their expected salaries based on the company’s financial ability. The job advertisement will give a brief description of the roles and functions of the officeholder and salary expectations. This means that all applicants will have read and accepted the salary offered by the company (Jones 2010). Therefore, the company will set salary scales depending on its financial ability, and anyone who will not be happy about his remuneration will not apply for the position. The company will have a lot of power in deciding the amount to be paid to the successful candidate.
This concept involves a pool of employees working from various locations and submitting their reports to a central office. The introduction of digital communication systems should be adopted by this company to ensure managers use the internet to conduct their activities. Also, it should computerize its operations to ensure it reduces human labor involved in management. Data collection, analysis, and presentation can easily be conducted through the internet using business programs developed to perform these roles.
The owner can consult computer professionals dealing with business management and seek their services. This will be cheaper and faster compared to human labor. Also, computerized business management will be available to the owner on a full-time basis. The expenses incurred will have minor adjustments due to the effects of the global economic crisis. Lastly, computers and networking will perform more roles compared to people and thus should be adopted to ensure the company does not plunge into insolvency.
Consequences of Downsizing Managerial Positions
This company must be prepared to incur additional expenses in case it decides to downsize its managerial positions. Interviews, assessments, and restructuring of these positions involve the establishment of new offices, stationery, and furniture that are expensive to acquire. Also, it will waste a lot of productive time in planning on implementing the above steps (Lockwood 2009). This may slow the production process and interfere with other activities.
Moreover, employees are human beings with families and other bills to attend to using the salary acquired from working in this company. Retrenchment of employees will mean many families will experience economic hardships before they adopt other ways of surviving. Some employees may sue this company for sacking them without notice, and this will subject this company to unnecessary tussles. Lastly, there will be tension among employees once they see their workmates being sacked since they will live in fear that they may be the next victims.
A business that generates profits is the greatest joy of its investors and other stakeholders. On the other hand, frequent losses are a big blow to investors, no matter the amount of money they have invested in their businesses. Retrenchments are common ways of reducing unnecessary expenses whenever companies are unable to generate enough profits to finance their operations.
Brown, T. (2009). Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation. New York: Harper Business.
Jones, G. R. (2010). Organizational Theory, Design and Change. New Jersey: Prentice Hall.
Liedtka, J. (2011). Designing for Growth: A Design Thinking Toolkit for Managers. New York: Columbia Business School Publishing.
Lockwood, T. (2009). Design Thinking: Integrating Innovation, Customer Experience, and Brand Value. New York: Allworth Press.