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On the other hand, it is not always about the negative effects of cost cutting that is important to focus on during the analysis of whether the strategy is beneficial or more costly. There are researches and studies that also reveal the positive sides of cost cutting. The problem being focused in this paper, however, is the study and analysis of how much benefits can cost cutting really bring to an organization's crisis and whether cost cutting is a smart strategy for companies to take.
Research Questions and Hypothesis
This study will focus on the research and study of the effectiveness of cost reduction as a crisis management solution. Immediate resort to cost reduction has been a habit for many businesses every time crises, such as economic downturns, labor disputes, and many others, hit the stability of a business' operation. Dealing with the pressures of such problems should be considered critical hence diverting to solutions must be made with thorough analysis and study. In view of this, this paper aims to analyze and study whether cost reduction/cutting is an efficient strategy. It is a fact that cost cutting is always in the top ten of the list of crisis management solutions that most companies consider. Despite of this, however, it is hypothesized that cost cutting, almost always, is not regarded as a 100% ideal crisis management strategy. There are many reasons found to this which will be among the focus of this paper to determine whether cost cutting is effective or not. For a bird's eye view, one reason found in the issue of cost cutting being inefficient is due to lack of effective implementation processes.
To determine the reality of cost cutting as implemented by organizations to solve financial crises, and to serve as guides in the objective study of this paper, the following research questions will be used.
What are the effects and outcome of cost cutting? What are the risks and benefits?
Does cost cutting result to more positive end than negative end?
How positive/negative does cost cutting impact a business, its employees, and its customers and clients?
What are the costs of cost cutting?
Significance of the Study
This study aims to provide useful information about cost cutting strategy. This study's significance lies on the objective that organizations and businesses will be enlightened on the pros and cons as well as the do's and don't(s) of cost cutting. From an analysis of the advantages and disadvantages of cost cutting, it is aimed that companies will be provided with idea as to when, where, and how, cost cutting can be ineffective or effective.
In today's increasing competition in both the local and international market, it is important that organizations know the right strategies and techniques in both situations of economic upturns and downturns. Hence, in view of this paper's subject, its significance can be seen in the provision of important information about one of the most common management crisis solutions and among the contentious business policies during crisis - the cost cutting/reduction.
Moreover, the information gathered by this study can be significant to the peaceful condition of an organization's work environment. Because of the information that this paper aims to provide to organizations and employees, particularly about the reasons when cost cutting is effective and when it becomes ineffective, situations of crisis can be well managed, thus resulting to a satisfactory work condition for both the employers and the employees. Among the organization activities where this study can be significant in relation to cost cutting are as follows (CCRBA online).
Adjusting staffing levels;
Optimizing procurement efficiency;
Identifying discretionary activities;
Minimizing materials consumption;
Minimizing travel costs;
Minimizing training costs;
Minimizing energy costs;
Reducing telecommunications costs;
Adjusting employee benefits to market;
Opportunities to reduce costs through outsourcing;
Optimizing technology investments; and Other issues identified by members.
Aside from providing organizations with information on the reality of cost cutting, the following shall be similarly discussed.
The advantages and disadvantages of cost cutting
When, where, and how, cost cutting is effective/ineffective
The effects of cost cutting
Research Design and Methodology
The research design and methodology of the paper will be a qualitative style of research. The author will use four methods of research, observations, interviews, survey forms and focus groups. The hope is to combine these methods and research findings to demonstrate the thesis of the paper and create innovative new ways to approach future research.
The author will first conduct an interview to employees of five companies belonging to different industries. These companies are currently in the verge of financial problems and are currently implementing cost cutting as among the strategies to save their companies and to enable them return to the game of competition with other businesses in the same industry. In addition, these companies used in this research belong to medium-scale enterprises, in that they employ about 1000 employees.
The author will use 5 methodologies in this qualitative research on cost cutting. These 5 methodologies are as follows.
The interview and survey methodologies will be merged by the author into one process through the use of questionnaires. To do this, the author will conduct the process to 30 employees in each of the companies. Questionnaires containing evaluative questions on the current cost cutting strategy being experienced by the employees will be distributed for the employees to answer. After which, another set of evaluative questionnaires containing the same questions but rephrased and asked in different format will be distributed to the same employees. The goal of the second set of questionnaire is to verify the authenticity of the participants' perception regarding the current cost cutting in their companies.
The focus group methodology will come in place within the merged interview and survey process. The author found that some of the 5 companies implement cost cutting only within particular departments/divisions in their organization structure. On the other hand, it was found that the rest of the companies are currently following cost cutting policies within the entire organization. In view of this, the 30 participants in the questionnaire process will belong to 5 different departments which will be considered as the grouping in this research and study. That is, the author will select 6 employees from every department to answer the questionnaires. From this grouping, it is hoped that the author can determine at which point is cost cutting effective and ineffective. For instance, if IT staffs in the department of information technology are reduced and the employees experienced project delays after the employee-reduction, it can be deducted that employee-reduction makes cost cutting ineffective. Of course, further validation to such inference will be required before concluding that employee-reduction really makes cost cutting ineffective.
For the internal data methodology, the author will conduct interviews to the companies' managing department particularly the companies' executive management. It is hoped that from them, the author can acquire information regarding the outcome/results of cost cutting within their companies. That is, whether cost cutting helped in saving their companies from financial crisis. Additionally, information on the rate of earnings of the company can help the author determine whether cost cutting has implications to the companies' clients and customers.
Internal data will be gathered from the human resource department of each company. It is hoped that the human resource can provide information on the overall impact of cost cutting to the employees. This includes information such as the rate of employee turnover after cost cutting has been implemented or the satisfaction rating of employees for their companies during the cost cutting period.
Finally, the author will also conduct observation of employee behavior during cost cutting period. It is hoped that through the employee behavior, while cost cutting is continuously implemented, the author can determine whether there is a change in the employees' motivation to work for their company.
Whenever businesses experience financial downturns, one of the immediate solutions being thought of is cost cutting. Several questions related to cost cutting usually comes to mind of a company's management department. According to Christine Pardinas, in her article Cost Reduction in Small-Scale Operations, the following are the initial gut reaction of most businessmen.
To lay off workers to decrease labor cost?
To compromise on quality of raw materials?
To skip an "non-essential" production step, like double finishing or inspection?
To skip promotion and other marketing activities?
These reactions often mislead businesses to more problems. To businessmen, the response to the idea of cost cutting is "why not?" This may be an ideal solution because of the perception that cost cutting will simply reduce cost. After all, a business is all about cost (Pardinas, 2005). However, before taking cost cutting as a financial crisis solution, there are important things that must considered. Pardinas (2005) further indicates the following.
A before you start laying off people or buying cheap materials - think again. Do you think doing so would guarantee an effective cost reduction…[continue]
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