Becker's Hospital Review caught up with Neil Faux, Managing Director at Prism, about 11 key considerations for executives planning labor cost reduction initiatives and the value of leveraging human resources departments to minimize cultural fallout during transition periods.
Common cultural challenges during labor expense reduction
1. Organizations tend to see labor reduction as an episodic event caused by poor productivity or financial performance. As such, employees may believe labor expense reduction is a short-term response to crisis rather than a long-term effort towards strategic realignment. In this case, employees may try to wait out change in hopes the workplace returns to normal as soon as the crisis is averted.
2. Labor expense reduction can also cause uncertainty or fear among employees and within the communities served by the organization. Concerns such as losing employment, benefits, or experiencing a pay cut are common among employees on the front-end of labor reductions.
Leadership priorities prior to labor reductions
3. Leaders should prioritize clear employee-management communication in the lead-up to labor expense reduction. Consider that disparate labor reduction strategies have distinct connotations and cultural significance for staff. Reducing costs through layoffs, implementing a pay freeze, or cutting benefits impacts workplace culture differently. Promoting clear messaging and communication is important to ensure staff understands the organization's long-term goals.
4. Key to messaging and managing cultural norms are the why, what and when of change. For instance, if an organization is committed to attaining labor reductions without laying off staff, then it is imperative leaders share that strategy with staff, however, leaders must be careful in their phrasing so as not to paint themselves into a corner should greater measures be required
5. Furthermore, executives should continually challenge themselves to manage labor expenses. To avoid employee dissatisfaction, or in the name of strategy and maintaining a competitive market position, organizations often rationalize reasons for rising labor, compensation and benefits costs. However, this may not always be the case as hospital leaders may be overlooking valuable opportunities to control labor costs. Paying close attention to their labor costs should be an organizational priority.
Advantages of using HR to manage labor expense
6. Human resources is traditionally thought of as primarily focusing on programs such as compensation, benefits and recruitment. As such, HR typically isn't brought into discussions around labor reductions until the organization begins considering a hiring freeze or a reduction in force (RIF), at which point HR becomes the primary driver in facilitating the process of labor reductions.
7. HR should strategically partner with key departments in the organization to provide ongoing guidance on how to manage labor expense. For example, HR staff can help managers identify resources required to provide optimal outcomes; develop targeted recruiting strategies to hire the best candidates; establish performance metrics to ensure employees produce desired outcomes; create a compensation strategy recognizing and rewarding high-performance employees; and design benefit programs focused on maintaining a healthy and productive workforce capable of sustained performance.
8. HR can be extremely useful in mitigating risk to an organization in the event of a RIF. Often, severance policies are not well defined, however, HR is uniquely positioned to know workforce composition in terms of employees, job titles, skills, tenure and costs. By bringing together this fragmented information, HR can support hospital leadership in making better labor decisions.
9. Moreover, HR already plays a key role in managing some labor costs — including retirement plans and employee benefits —An important decision is the balance between reducing benefits related costs, staffing costs through a RIF and other strategies like tighter hiring processes, improved productivity and more efficient scheduling practices.
10. If an organization does conduct a RIF, Human Resources is integral in creating succession plans to ensure a smooth transition of talent. An often-overlooked aspect of RIFs is the impact on the staff that remain and ensuring that operations and outcomes are not negatively impacted. Human Resources can help mitigate this risk through consistent communication strategies that help keep the organization’s workforce focused on the future success of the organization.
Making sure labor reductions are sustained long-term
11. No one looks forward to episodic labor reductions. HR can ensure positive long-term labor change through data sharing, transparency and collaboration. Specifically, HR can establish productivity infrastructure tools and applications, implement workforce planning protocols, and create an environment of continued and sustainable processes to make labor cost management a part of daily operations.