Thursday, February 19, 2009

How companies are saving money these days

Even though I am relatively new to the career world, I have noticed numerous ways that companies try to save money over the years. But nothing like what I am seeing these days.

Being in the middle of this recession, I have seen creative ways into how companies are trying to save money. I have seen letters of employment being revoked anf leaving my friends jobless. Companies moving to a 4-day workweek (with the 20% cut in salary and still expecting no loss in productivity...), along with no longer paying for overtime. As well as the massive layoffs happening everywhere.

For one of my past employers, which is in the telecommunications sector, I have noticed these specific points being implemented:

1. Getting rid of expensive contractors and consultant engineers.
2. Mass employee layoffs
3. Scrutinizing all expense reports
4. Salary freeze across the board
5. And the one I find the most interesting...trying to consolidate their hardware and software to a single platform. Even the communication links between different hardware types is being moved to a single communication protocol.

So, let's analyze these 5 points.

1. Even though companies usually save by hiring consultants, since they don't have to pay any benefits, and they are great for short-term projects where you only need somebody for less then a year. But in the telecom deployment field, projects can last for 2 years, and these consultants cost at least twice the salary of a employee. Plus, with an employee, it's easier to get away with not paying for overtime.

2. Employee layoffs, get rid of products with low margins, or non-essential staff like R&D and overheard administration. It's not wise to make your R&D department smaller, but in times of crisis, they are usually the first things to go since in the short-term, sales do not get affected.

3. This leads to mistrust with employees, but I have known cases where employees were pretty "loose" with expense reports. The temptation is strong to want to get a more comfortable airline ticket or hotel accomodation that costs more money. Even I was offered blank receipts by taxi drivers, and I had to fill in the details. I could have easily cheated the system but I didn't.

4. Freezing salaries saves 3-4% in labour costs alone.

(every company seems to be doing it..even the strong ones like Microsoft, this seems like just an excuse to please shareholders)

5. Consolidating helps lower R&D costs, helps lower the costs of creating patches and fixes, and improves the competency of staff since there is not too many software and hardware platforms to work on. But one must be very very very careful not to give the impression to customers/clients that this is a company with only one product line. There must be a differentiation factor so the illusion of having many robust products gives the customer the feeling of choice. The best way to do this is only to consolidate the basic structure, and then change on the superficial things (such as the look, the options, the colour, etc. of your product)

One of the most clever ways is in the microchip industry with Intel and AMD. The would sell a lower-end of their chips that were defective. For instance, nowadays you can have 4 chips in a single package. Well if one of them is defective, AMD was selling a special lower-end three chip version, without making it too obvious that it's in fact just a defective four-chip version. The same thing happened with "cache" with Intel. Cache is how much memory there is on a chip. Cache is made up of modules, when one of the modules was defective, Intel would sell the chip as a lower-end model.

Nearly every car manufactuerer does that too these days. Most car companies are actually two or three companies put together, so different companies within the same entity would sell different models but based on the same chassis from the same manufacturing plant. This helps a lot in cost savings for the automotive industry.

When you think about, even if these five points suck if you are an employee, these are actually excellent techniques that you can use for your own home or small business to save on money.

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