In a year of change, it may not be surprising that globally, the likelihood of companies undertaking cost reduction initiatives has increased by 74% in comparison with pre-COVID-19 levels.  And yet, Deloitte’s Global Cost Survey suggests that almost 50% of companies fail to meet their cost reduction targets. 

Why is this? 

We find it is often connected to a transformation approach that hasn’t prioritised the human impacts, or understood the need for people to be at the heart of a programme’s engagement and outcomes.

Cost transformation initiatives can significantly impact employee engagement and productivity; programmes frequently struggle, or completely avoid, engaging with an organisation’s people. Although this approach can be simpler, and deliver short-term savings, it can be at the expense of employee trust and morale and can cause longer-term problems and drive up hidden costs. We find that organisations can achieve sustainable and purpose led cost reduction by humanising their approach - providing a supportive and engaging process that brings employees on a human-centred transformation journey.

Through this journey, organisations need to track and analyse certain metrics that will allow them to understand progress, and measure the overall effectiveness of their initiatives. Cost reduction programmes focus on financial KPIs, but increasing the focus on people-oriented metrics can help organisations to surface the longer-term risks and costs of change, and allow us to proactively find solutions. They help us understand how employees are engaging with and feeling ownership of the transformation – and ultimately the engagement of an organisation’s people will have the most significant impact on the success of programmes, helping to drive the narrative and purpose of change.

By understanding the engagement levels, ideas and views of our people, we can recognise what is working well, and where we could benefit from additional, tailored interventions and communications - across three key areas:

1. Social responsibility and employee engagement

  • Metric: Regular employee engagement and wellbeing indicators – eg ‘pulse’ surveys, attrition rates, absence levels, overtime, feedback from management, exit interviews

Why? Putting people at the heart of cost transformation mitigates the potential impacts on employee health and wellbeing, such as increased stress driving down motivation and productivity. Feedback can also show how the messaging is landing, and indicate buy-in to the organisation’s vision. Early awareness means we can change processes, messaging, or the support and training needed.

  • Metric: Internal redeployment - eg redeployment role applications, associated cost savings, employee feedback

Why? A strong redeployment process and culture supports impacted employees, bolsters engagement with all employees, and reduces severance and hiring costs. Internal hires often add value more quickly, as seen at a global financial services organisation who continued to invest in redeployment after initial cost savings had been banked.

2. High-quality service for customers

  • Metric: ‘the voice of the customer’ - eg customer feedback surveys, NPS scores, complaints data, issue and escalation tracking

Why? Poorly-handled cost reduction can risk lower-quality services for customers, driven by disengaged employees or poor change management. Customer trust and satisfaction take a long time to re-build, so catching concerns early can highlight best practice, or areas that need further focus.

  • Metric: Key employees – identify and retain employees who maintain service quality or deliver change

Why? Recognising these people early in the transformation journey helps to prioritise messaging and incentives for them, and to retain them through the programme.

3. Sustainability of cost reduction

  • Metric: Internal talent pipeline - eg attrition and engagement of high performers, junior talent

Why? Sustainable cost reduction means retaining talent, and attracting and retaining high performers in the future. Increased turnover can suggest the company is not an attractive place to work, and losing top talent lowers productivity and drives up hiring costs.

  • Metric: Market perception – eg press / media metrics, role applications, recruiter feedback

Why? A negative brand affects client confidence, and the ability to attract external talent. An ‘outside view’ shows how the firm is being perceived throughout transformation - and can be problematic long after the quick wins from short-term cost saves have been forgotten.

  • Metric: Broad range of cost drivers – eg external contractor spend, vendor spend, property costs, travel budgets

Why? Driving reductions in one key headcount metric can drive increases in external hires or variable costs. Looking holistically at cost can help flag where unintended consequences might be driving up costs elsewhere in the organisation – as seen at a global financial services organisation, where initial cost saving initiatives resulted in increased 3rd party contractor headcount. Similarly, a global insurance firm recently recognised an opportunity to review long-term contractor roles to identify where making roles permanent could save costs (and connect to IR35 goals).

What next? People-oriented metrics are often already tracked in different areas of the organisation. By bringing them together early and consistently we can react to risks and issues more flexibly. Using metrics to drive continuous improvements to our communications and approach ensures that we’re meeting the changing needs of employees and the programme.

Putting the organisation’s people at the heart of Cost Transformation reduces the negative impacts to employees and ensures that costs are reduced more sustainably, and with greater transformational impact for your people, for a longer period.