The folly of cost cutting

A rival business publication this month lamented the quality of the nation's journalism. The writer had been to the US where journalists are paid quite handsomely and, surprise, surprise, the quality of the writing is so much better, he says.

A rival business publication this month lamented the quality of the nation’s journalism.

The writer had been to the US where journalists are paid quite handsomely and, surprise, surprise, the quality of the writing is so much better, he says.

People stay with their employer, they are trained and nurtured in the company’s culture, staff do a good job, the publications enjoy good sales and everybody is happy.

In New Zealand, by contrast, journalism is about the lowest paid of all the graduate professions. We even make teachers and nurses seem rich.

In my job, I come across people in public relations who earn considerably more than me, sometimes several times my salary, even those with much less experience. And what's more, some of them are even “failed” journalists!

Others did not exactly fail but with a mortgage and family to support, they realise they must “sell out” to PR to make ends meet, thus denying the industry their talents.

This article is not a criticism of my current employer, but an exploration of one of the wider problems affecting New Zealand industry, that of cost-cutting.

Of all professions, journalism seems the biggest victim in recent years with staff reductions and wages that have lagged behind other sectors, unless they have actually fallen in absolute terms. Quality has suffered -- just look at our awful Sunday papers -- though new technology has helped.

Yet, media bosses wonder why newspaper sales keep declining.

In Britain, a few years back, the industry went through so much “restructuring” -- read job cuts -- that within a year, some papers lost 10% of their business and found it all self-defeating. The bigger the cost cutting, the more harm they did to their longer-term business.

I observed this same phenomenon at a previous workplace in New Zealand.

When the business was taken over, the first thing they did was fire a load of sales reps.

The one they kept on, they paid around $10 an hour. Was he motivated? Was he hell! Did he deliver? Did he hell! Yet, despite issuing many warnings, they chose not to sack him, believing another rep would cost more. They also wondered how the opposition gained so much market share. Perhaps it was because they had plenty of sales reps and paid them well.

Covering human resource issues, I am often told about the cost of replacing staff. Some job agencies estimate it at around six months’ salary in terms of lost skills, productivity, training and the time spent looking for replacements.

The wages at my old company were notoriously poor and overall conditions were abysmal. Their reputation spread far across the land.

Staff would stay just a few months before moving on; some just weeks. Thus, looking for replacements was a regular and time-consuming task. Few applications were received for jobs and often candidates pulled out when told the salary.

The same ad in the Herald was often repeated and as small as could be, to keep the cost down.

As my successor tells me, this simply signifies the company is a bad employer. People keep leaving and if the firm is unwilling or unable to fund a decent, new advertisement, they won’t pay decent salaries.

As a manager, I was paid a relatively decent salary, about double that of my staff. But I was too expensive. I fell victim to cost cutting because I looked big on the balance sheet. The fact I did the work of several people was beside the point. I was paid off and it was chaos for weeks after I left.

They failed to find a successor and my right-hand man received the poisoned chalice, while still doing his job.

Some months back, the business slashed its operations, narrowly avoiding closure, yet the relentless downward spiral continues. The 0800 freephone number has just gone, along with another phone line, leaving only the one number. Anybody can answer the phone as you are eventually put through to the right person. This might save a phone line rental, but at what cost? Fifty or so phone calls a day at a few minutes a call adds up to much lost productivity, never mind poorer customer service, and all for about $50 a month.

Yet this is what makes the owner of the business tick. Cut, cut and cut again.

But does it work? If it did, this would be the most successful business in the land. Instead, it has lost much money and miraculously soldiers on.

Likewise, New Zealand would be a world leader, but instead we grapple at how to grow again.

The Human Resources Institute at its annual conference last month heard how New Zealand has suffered too much from a cost cutting mentality. Constant “restructuring” and “downsizing” leaves firms too weak to compete. Business has forgotten how to grow and go out and win new custom.

Our government is presently meeting with bosses it feels it can get along with.

But all businesses should hear about how they need to invest, to grow, pay well and take a longer view.

There is little point just preaching to the converted.

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