The Downsizing Dilemma (Part 2)

MSPs, like most other businesses, are subject to economic downturns, changing customer needs and trends, and just plain bad luck that leave no option but to drastically cut costs. In Part 1 of this article series, I discussed how to handle that most dreaded – by employees and employers alike – situation in the work world, when it becomes necessary to engage in “workforce reductions” – a nice way of saying “layoffs.” In Part 2, we’re going to look at ways companies can downsize without giving anyone the pink slip.

If you decide to start an exercise program to get into shape, you’d look first at where the inches need to come off: waist, thighs, double chins? Then you would tailor your plan to address those areas of your body that most need downsizing. Likewise, the first step in creating an effective downsizing strategy for your MSP that spares jobs is to determine where the “fat” is and then you can start to make cuts. Get out your budget reports and figure out where the money is going.

There’s no way around the fact that personnel costs are generally a significant part of your budget. But that doesn’t necessarily mean you have to start slashing jobs. A more gentle way of reducing the workforce and associated expenses is through planned attrition. When employees leave on their own for new opportunities, or retire from the workforce, you have an opportunity to decrease employee costs by not hiring a replacement, by hiring a part-time person instead of full-time, or by hiring a less experienced/skilled person at a lower salary. The key is to ensure that the job will still get done to the standards you need.

You may also be able to reduce personnel costs by cutting salaries, benefits and/or perquisites, selectively or across the board, instead of jobs. This has to be done carefully, or you can end up with a serious morale problem. Getting employees themselves involved in the cost-cutting process can help to ameliorate the inevitable dissatisfaction when something is taken away. If employees are allowed to give input (i.e., which benefits are they most and least willing to give up?), it can foster more of a sense of “we’re all in this together.”  It also helps when employees see that managers and executives are making sacrifices, too.

Office and facilities costs are often large expenses. Running an MSP requires space for computer equipment and personnel, but many companies pay for more space than they really need. Remember that it’s not just rent – you’re also paying to heat and cool all that space, and insurance coverage may be based in part on square footage, too. Then there’s maintenance, cleaning and other expenses that add up.

Literally downsizing your operations can save a good deal of money, but those savings have to be weighed against the cost of moving. If there’s a way you can lease some of your space to another company instead of moving to a whole new facility, you’ll save more and have less hassle factor.

Space planning is essential before reducing the size of your physical accommodations. Just as you need to consider who will do the work when you eliminate jobs, you need to consider where you’ll put the people and things when you eliminate room. If you have large empty spaces that aren’t being used regularly, it may be an easy decision. If not, you may need to think about reducing the footprints of the equipment and people that currently occupy the space.

A telecommuting program can reduce the need for office space – if you have employees whose jobs can be done as easily from home and who have the self-discipline to work unsupervised. A bonus is that opening a job up to remote workers increases the pool of candidates so that you may be able to find more qualified people for positions if the time comes to replace home workers or add new jobs. And because telecommuting has real, tangible advantages for the remote workers – including personal cost savings on transportation, clothing, lunches and time spent away from family – some employees may be willing to “trade” other monetary benefits or accept a lower salary in return for being allowed to work from home.

As much money as downsizing the physical space can save, it’s not always feasible due to long-term leases, location requirements and other factors. Next time, we’ll look at other ways to downsize that don’t involve reduction of either the workforce or the size of your physical facilities, and we’ll wrap up with a discussion of downsizing methods that may end up costing you more than they save.

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