Cost cutting and staff morale: how to keep your team on side

Key takeaways

Cost cutting and staff morale are linked by uncertainty. People cope with hard news far better than with silence. Say early what is happening, why, what it means for jobs and what will not change. Then involve the team in finding the savings, because they know where the waste is. Morale lost to rumour is expensive to rebuild.

• Uncertainty harms morale more than the cuts themselves.
• Say what is happening, why, and what it means for jobs.
• Ask the team where the waste is, since they know.
• Resignations after a cut can cost more than it saved.

Why does cost cutting hurt morale?

Cost cutting hurts morale because people fill gaps in information with the worst case. A cancelled order of biscuits is read as a sign of redundancies. The Health and Safety Executive's Management Standards identify how change is managed and communicated as one of six main sources of work-related stress.

• How BPO can help businesses reduce operational costs
• Cost-cutting mistakes that end up costing a business more

What does low morale cost?

Low morale costs output, accuracy and people. The first to leave are those with the most options, who are usually the ones you most want to keep. Replacing an employee means recruitment fees, weeks of vacancy, training and a period of lower output.

In an illustrative case, a savings round that trims £15,000 from a team's budget and prompts one resignation from a £30,000 role can cost more than it saved once recruitment, a two-month vacancy and three months of training are counted.

• How to tell your team you are outsourcing
• How to reduce labour costs without cutting your team

What should you say, and when?

Say it early, in person and in plain words. Tell everyone at the same time. Cover the reason, the size of the challenge, what it means for jobs, what is not changing and when they will hear more. If you do not know something, say so and give a date.

• 1. Why costs need to come down.
• 2. How much, and by when.
• 3. What this means for jobs, honestly.
• 4. What will not change.
• 5. How people can contribute ideas.
• 6. When the next update will be.

• Alternatives to redundancy: lower costs and keep your people

How do you involve the team?

Involve the team by asking the question they are best placed to answer: what do we do that is a waste of time? People who do the work can list pointless steps immediately. Acting on those suggestions visibly, within weeks, shows that the programme is about waste and not about them.

• Run a short session per team on wasted effort.
• Collect ideas in writing and reply to every one.
• Implement the easy ones at once.
• Credit the people who suggested them.

• The eight wastes of lean in an office, and how to cut them
• Value stream mapping for service and admin processes

How do you introduce outsourcing without alarm?

Introduce outsourcing by being specific about which tasks are moving, why, and what each affected person will do instead. In many small businesses the honest message is a good one: routine work is going so that existing staff can do more of the work they were hired for.

If roles are at risk, or work is transferring to a provider, employment law including TUPE may apply. Take advice and consult properly before announcing anything.

• TUPE and outsourcing
• The cost lever scorecard: find savings process by process

What are the signs trust is slipping?

Watch for changes in behaviour. They appear before anyone resigns.

• Meetings go quiet.
• Questions stop.
• Sickness absence rises.
• Good people become hard to reach.
• Rumours reach you from customers.

• Cost reduction KPIs: the numbers that prove savings are real

What does this look like in practice?

A pattern we see in owner-led firms: the owner delays telling the team until every detail is settled, to avoid worrying them. By then the team has known for weeks that something is going on and has assumed the worst. An early, incomplete, honest briefing would have cost nothing.

• See client work
• BPO Solutions for UK businesses

Morale checklist

Check these before and during any savings programme.

• The reason is explained in one clear sentence.
• Everyone hears at the same time.
• The effect on jobs is stated honestly.
• Staff are asked for savings ideas.
• Easy ideas are implemented quickly.
• Updates happen on the promised dates.
• Advice is taken before any role changes.

• A 90-day plan to reduce operational costs
• Operational cost reduction checklist: 20 checks

Next step

Tell us what savings you are planning and how your team is likely to react. We will help you shape a plan that finds the money without losing the people.