Thawing ‘hiring freezes’ as cost control

A number of companies are reporting cost reduction strategies in the face of a challenging economy.  Many of these so called ’strategies’ to reduce cost include hiring freezes, basically a strategy to limit new hires and realize cost reduction through workforce attrition.  Hiring freezes as a cost reduction strategy is simply a knee jerk reactionary move that flies in the face of strategic cost management.  The looming retirement of baby boomer workforce has employers struggling to keep pace with hiring needs.  During this war for talent companies can not afford to sit on the sidelines for a couple of years as a method to control costs.  Profits are a function of people and process, the right strategy executed by the right people.  A hiring freeze simply is a short cut easy answer based on archaic practices, and could prove to be disastrous for companies in the long term.

To have a positive impact corporate finance should carefullly look at corporate spending and the alignment of that spending to strategic objectives.  When times get tough, the tough do 3 things:

1. Protect the Core - ensure that spending that directly supports current revenue streams is not adversely affected by cost reductions.  In fact these areas may need additional funding to protect revenues, market share and customer value in a weak economy.
2. Invest in top strategic initiatives – only approve funding on projects or positioning efforts where it is clearly aligned to the company’s top strategic objectives, focusing on those that should provide the highest return on investment.
3. Mitigate ‘real’ risks – too often the ’sky is falling’ approach is used to secure funding for initiatives.  Fear should not drive stakeholder spending decisions.  Finance has to make sure that spending to mitigate risk is effective and protecting the company against a real and reasonable threat.

However, if these cost reduction strategies prove to be to challenging to implement.  A better alternative to hiring freezes would be to eliminate corporate ego spending such as corporate jets and other unnecessary luxury purchases.

Scott Wise  President, CEO  Armada Consulting