Good News, Bad News in Budget Cuts


No big surprise in the news that nine out of 10 U.S. companies have implemented cost-cutting strategies. You know, other than what's the deal with the remaining 10 percent?


The most popular measure, mentioned by 67 percent of respondents to a Challenger, Gray & Christmas survey, is slicing travel expenses, followed by imposing hiring freezes and reductions, used by 58 precent of companies. I wrote about the latter strategy last month, citing a Dice.com survey that found 70 percent of IT hiring managers scaling back their plans for hiring. That was up 20 percent over the number who reported hiring fewer folks in the summer. Thirty percent of the Challenger, Gray & Christmas respondents had begun salary freezes or reductions.


There was good news and bad in the Challenger, Gray & Christmas survey. Companies are using tactics like these, along with others such as cutting bonuses, shortening work weeks and mandating furloughs, to avoid layoffs. They seem to realize, as one of one my sources for a recent story on layoff alternatives pointed out, that it can be difficult if not impossible to recover the knowledge and talent lost during large layoffs. That's the good news.


The bad news: Such measures just aren't enough. Fifty-six percent of the respondents had made permanent workforce reductions. As the New York Times reports, such reductions have spread to nearly every sector of the nation's economy. Largely confined to the financial services industry following last summer's credit crunch, they have expanded to include IT, manufacturing and retail. Among economists interveiwed by the Times, some thought companies would resume hiring if federal government economic stimulus measures are put into place. Others weren't so sure.


Severe downturns often motivate companies to dramatically restructure their existing business models. This may be the case for Microsoft, for instance, which announced last week it would lay off 5,000 workers. While it has laid off employees before, the cuts have never before encompassed all areas of its operations, including research, sales, finance and technology.


Says Andrew Stettner, deputy director of the National Employment Law Project:


"Structural change is put into overdrive because of the recession, so who knows for sure how a company like Microsoft will fare?"