Dinesh Divekar
Business Mentor, Consultant And Trainer
Saswatabanerjee
Partner - Risk Management
Loginmiraclelogistics
Asso.prof.(commerce & Management) Pg
Sreeram70
Manager
Chhaya Nagpure
Appraisals

Hi team,
Now since in most of the organization a major talk is on about the cost reduction. Would like to have expert comments/views on cost cutting measures in service industry wherein the margin is just paper thin....branches gets shut just to stop the erosion...in such case if the major cost is on salaries then is it a appropriate to reduce the salaries for some months till organization will have its breakeven specially for a new set up?? Kindly advice.
Regards,
Chhaya
20th August 2013 From India, Mumbai
Sir, this is very crucial posting which relates directly to the individual employees. This must be handled very carefully that too for a new set up. There are many other ways to have the cost control more effectively for example:
1 work from home - a compulsion for 14days(depending on the cost) where the employee gets may be 20% less than that of regular.
2 reducing the other benefits given employees
Any proposal for cost reduction where employees have a direct hit must be compensated with some benefit in future, this will add a certain moral confidence in the employee and the output from the employee will not be effected.
Regards
JSR

20th August 2013 From India, Hyderabad
Dear Chhaya,
Have you checked this forum before raising your query? Just recently there was discussion on this subject. Click the following link to read my reply:
https://www.citehr.com/468695-cost-c...ml#post2082176
Thanks,
Dinesh V Divekar
20th August 2013 From India, Bangalore
Cutting down salaries is a possiblity in the current scenario

Its easier if you already have a fixed, variable salary structure. then you just reduce the variable wages.

If its fully fixed salary, then you need to call and speak to each of the employees (or with the union if there is one) and explain the economic scenario. Explain to them that there are 2 options : we fire xxx number of employees / shut down one of the factories / offices / branches, or everyone takes a salary cut (may be temporarily).

If the employees are rational, they will agree.

The example of what happened with TV18 should be enough of an indicator (450 employees terminated in a week due to profitability and cash flow issues)

However you need to ensure that the salary cuts are uniform across the board.

It should not be that some who agreed got cut and those who refused get full salary.

Also, cuts should implemented for the top management.

further, a better way is to look at all perks, benefits and expenses that can be cut down without affecting productivity.

In most cases, that can make a better contribution to profitability than the basic salary reduction

Also ensure that the reduction does not result in salary going below min wages level.
22nd August 2013 From India, Mumbai
Dear friends,

The art of cost cutting/cost reduction in itself a onerous task the success of which lies in averting murmur from any quarter. This is to say that one has to first identify carefully which areas to be touched and which shouldn't be. No doubt a down sized purse definitely pinch the concerned as most of them would have their own commitments. Accordingly the success will be assured when a few wasteful expenditure is identified at the same time feasible quantum from such attempts also important factor. If there is none the second option could be to increase the revenue from profit centres where the corresponding cost could be minimal or the variable cost is less and the fixed cost would remain almost at the same level. Though the marginal costing methodology may not apply directly to some service industry ways should be found to increase the volume and the profitability. Optimum utilisation of man power and avoidance of wastage, idling are few other options. But for new ventures there need not be any success as they are infants and infanticide is a crime adduced towards decision makers.
23rd August 2013 From India, Bangalore
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