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The fact is that the global growth profile of 2023 shows a downward trend. According to the IMF forecastthe economy will only grow by 2.7% this year, compared to 3.2% in 2022.
In fact, the projected data for advanced economies looks even more discouraging the World Bank forecasts economic growth of 0.5% in the US in 2023, which is nearly 2% lower than previous iterations. This leaves pundits scratching their heads over whether we’ll be running to yet another one anytime soon great recessionor not yet.
Team cutbacks are just around the corner, aren’t they?
Presumably driven by the ongoing downward economic spiral, thousands of companies in various market segments (mainly technology, media, finance and healthcare) announced massive workforce cuts in 2022, and this never-ending fire streak continues.
Here are just some of the most stunning numbers.
In January 2023, Sundar Pichai, the CEO of Google and Alphabet, announced announced the company’s plans to lay off 12,000 team members. Disney plans the workforce must be reduced by at least 7,000 jobs. Amazon will be farewell to 18,000 employees. Goldman Sachs will say goodbye to more than 3,000 employees, will be Philips cutting more than 6,000 jobs worldwide, and news of mass layoffs just keeps coming. In total, more than 125,000 people were laid off by technology companies alone by 2023, per fired.fyi.
But is the global market slowdown actually the main factor influencing the massive workforce cuts? While the need to cut spending may be the common ground, in a more nuanced context – not so much.
Indeed, many of the companies in the technology sector, such as Peloton or Zoom, are facing staffing challenges fueled by their exponential growth dynamics during the Covid-19 pandemic, which proved next to impossible to sustain after the downturn.
Meanwhile, in the real industries, such as the automotive industry, some companies, such as Jeep Cherokee explained that their plant is dormant amid rising costs for electronic vehicles (EV).
Related: Layoffs abound in various industries, but these big companies are still hiring
But most surprisingly, some commentators assume that many companies simply “follow the herd” in their market niche. In plain words, their assumption is that while the widely predicted recession is forcing companies to somehow tighten their belts, laying off employees is just their go-to solution, seemingly working for their competitors. Like business professor Jeffrey Pfeffer told Stanford News“They’re doing it because other companies are doing it.”
And the truth is that a massive workforce reduction in the short term doesn’t really save money (imagine the severance pay), and can even flatten business development in the case of medium-sized companies and small startups.
How to cut costs without laying off your team
Given the continued decline in economic activity, fueled in some ways by ongoing supply chain disruptions, and the sharp rise in inflation rates, cutting operational expenses seems like a reasonable idea. Not only can it take additional pressure off the shoulders of entrepreneurs in uncertain times, but also free up extra resources to finance the growth areas.
And, as mentioned above, letting go of your teammates isn’t the best choice (unless you’re overworked, of course), so it’s critical that you eliminate the latter risks from the equation right away.
So, how do you determine that you are overbooked?
Essentially, you need to analyze the span of control of the average manager in your company, or in plain words, how many people report to each of them. This number may differ depending on the type of company or industry. Anyway, the common ground is that if it is lower than 5-6, most likely the organizational structure has too many levels, with the average optimal management-to-employee ratio currently ranging from 1:15 to 1:20(25).
Suppose you have no obvious problems with the large span of control and the risks of overstaffing are not your business case. Consider the following checklist for evaluating opportunities to reduce overall business spend without burdening your business processes and offloading the team:
It is quite predictable that even small startups with limited funding usually use a large number of paid SaaS solutions in their business routine (from a CRM and task management tools to mere G Suite and accounting software, for example).
And while the importance of such tools is hardly in doubt, their actual selection, as well as the pricing, sometimes is. What I’m saying is that while the high-quality product costs money, negotiating a discount is a much rarer option than you might think, which is a huge miss.
And if you’re paying for two similar management tools, with maybe minor differences, using a more advanced version of one of them instead is actually cheaper, especially in the long run.
Rent office space
While the end of the acute period of the Covid-19 pandemic has spurred many companies to return to offices, there is a good chance that choosing a hybrid office could help reduce spending significantly.
Let’s do a quick math. Imagine you have 10 people permanently in the office and consider rearranging the office space into a high-traffic area that can fit 5 people at a time. As a result, the office space is halved and the required office space for the common areas (such as kitchens, breakout rooms and meeting rooms) decreases by at least 20%.
Since the average space per employee was estimated to be 75 – 150 square feet in pre-pandemic times, according to JLL research (50% desk space and 50% frequently used areas), the change of the office type from an offline to a hybrid office type in the example can help to reduce the required office space by at least 20 square meters.
In plain money, this could potentially save you about $7,000 monthly in office rent in Seattlefor example.
Related: Looking for a new office for your team in 2023? Here’s what you should take into account.
While keeping your optimal team will certainly help streamline operational processes, consider limiting the hiring process for new employees, who may be needed for your newly developed business projects.
That is, if you hope to launch two new products in 2023, it might be a wise idea to select and prioritize only one product during a recession, to save financial resources. Another way to reduce human resources expenses is to realign employee compensation and recognition programs, ie better align them with certain business KPIs. This way you can keep your team motivated without spending too much money on annual bonuses across the board.
Ultimately, it’s up to each business owner to decide how to prioritize spending and whether to cut staff, or not during a recession, but navigating a business through uncertain times usually requires a strong team, so why risk run to time and resources invested to build it? That is the question.