The credit crisis of the second mid of 2008 hit our company in liquidity terms.
The recession that resulted from the financial crisis hit our firm in costs and profits along with market share capability. It is true that in order to be more competitive and “survive” the recession intact we have to reduce costs of production. Wages and overtime payments are important factors in the total cost of production for every company (Dominic, 2008).
To still remain competitive and at the same time, we have to keep our working force intact and not demoralized. A demoralized working force would ultimately result in an increase in costs for our company in the long term. As a result, I propose the following course of action, or strategy:
The first step would be to announce that there will be a limited number of overtime hours per week acceptable for each worker. They cannot work more overtime hours than this number of hours decided.
The second step would be that the payment for the overtime hours will be cut by a percent that the company would retain appropriately. I would suggest reducing the overtime per hour payment by an initial 20%.
A third one would be to reduce the payment for the normal wage working hours. This would be only in the case of business is going very bad.
It would be hazardous to touch the normal working hour’s payment would provoke a reaction from the workers and at the present situation of crisis our company has to eliminate any possibility of negative reactions from workers. Companies cannot afford to have riots or any reaction that would stop, or even slow down, production.
But the negative reaction can come even from the cutting of the overtime hours and hourly payment.
In order to avoid this situation, a second plan should be undertaken. This will be a sort of “internal marketing campaign” made by Human Resources.
First, policy statements should be made by the company’s management that there will be no working force cuttings even though we are in a recession. To all workers, Human Resources will personally transmit a memo in which is stated that the company has put trust in them and intends to pass through this recession along WITH them. The clear message that no one will be sent home and so they would have a guaranteed income. But in order for the company to achieve there are going to be some changes. This is what we talked above about the overtime hour cut, overtime pay per hour cut and, only if necessary, normal working hour payment cut.
An example would be the strategy the auto industry is using to have its workers motivated in these difficult days. It is true that they are cutting jobs but they are trying to do that the least they can. On the other hand, they have made a redistribution of the overtime hours and encouraged their workers to compete to get them. The one that will perform better will get these overtime hours as bonus (Frings, 2008). So, the workers focus was diverted from the fact that they had their hourly payment cut to competing to get this overtime hours in order to gain more money. And more money in a recession is helpful for the worker. This way the cost of wages and overtime hours is reduced and the working force still remains intact and motivated.
A final proposition on reducing costs for the company would be to focus production on one, or some, products that the company offers in the market. It is wise to focus on increasing the quality of production on those products that give the company the highest revenue and market share and, just for this bad period, leave aside the other, or new, products launched. This will reduce the total cost of production because the raw materials and supplier and distribution costs for these other products will be reduced also. And by managing to distribute fairly the overtime hours among workers still, you offer them a kind of incentive which will have a positive effect on production.
Let’s make an assumption. If the decrease in overtime hours is not done according to the scheme proposed above this will have a negative impact on the “moral” of the labor force. This negative impact will result in less efforts and attention to work which will eventually result in a gradual lowering of the quality and of production rate. At this moment of crisis, reducing quality and supply (production rate) will have a negative marketing effect on the mind of the consumers. This will result in lower purchases of our products and s0 less liquidity for our company.
References
Dominic, Ch. Cost Reduction Ideas (Beyond Sourcing). Next Level Purchasing. 2008. Web.
Frings, Ch. Budgeting for Overtime. All Business Website. 2008. Web.