Why Temporary Spending Cuts Don’t Work
Temporary spending cuts in agencies often fail due to a rush to resume spending once restrictions lift, causing confusion and panic among staff. Here’s what Stephen Kenwright thinks about temporary curbs and why they don’t work.
If you missed Stephen’s session at the Agency Growth Events, here’s your recap. Don’t forget to download the free copy of The Agency Growth Book 2024 to unlock Stephen’s article.
Agency life can be hard
A first-class train journey, a long lunch, and a nice hotel could sometimes be considered perks that make the job bearable. When staff is informed that cost-cutting measures are temporary, it doesn’t reassure them that controls are in place: it creates panic that controls are necessary at this moment and that the agency is struggling.
Then, when the agency’s costs are brought under control, it creates confusion about what is allowed. This is especially true when staff note that senior people seem to have started spending money again, and it hasn’t been communicated to the wider business that the situation has improved.
Then, when the agency’s now-healthy status is eventually communicated to all, it creates the feeling of “open season”, and everyone asks for everything they’ve been waiting to ask for all at once.
So, management must consider whatever situation the agency finds itself in as the “new normal.”
“Temporary spending curbs don’t work because most senior people in agencies can’t wait to start spending money again.”
Communicate the “New Normal”
Sometimes, particularly since COVID-19, it isn’t clear what the new normal will be. But even if the world largely returns to how it was pre-pandemic, isn’t a culture that defaults to not spending the company’s money desirable?
Temporary travel bans can be replaced with a permanent culture of travel resistance, where not spending money becomes the default and travelling to clients or new business meetings requires a business case or, ideally, a charge to the client (assuming that clients even want in-person meetings).
Senior people who love spending money must live with this: they must find new job perks instead.
Here’s a few highlights and tactics from Stephen’s article for re-establishing a new baseline:
A review of the travel policy in good times, publicised internally, will not create the same panic as wholesale cost-cutting measures.
Try this on: “We know that you’re in demand, and other companies would love for you to join them. We’re committed to paying you fairly, so we’re always looking for opportunities to reduce waste in our processes, which means we can fund salary increases now and in the future.”
Want something more concrete? “We’re spending £X on travel, and we think that’s 50% higher than it should be, so for every month that we spend less than £Y on travel, the agency will contribute £Z to a fund for new home working equipment/training/social events/something else you want and that we want to give you if we have the cash.”
Take some time to categorise the vacancies you’re advertising as critical and non-critical (remembering to stress that everyone is equally important once they’re on payroll): “We’re pausing all non-critical hires until X time as a precautionary measure” is less scary than a complete hiring freeze.
Consider offering a hiring bonus for critical roles only (it’ll still be cheaper than hiring a headhunter). Depending on the agency's strategy, let the management decide which roles are critical.
For more tips, download The Agency Growth Book 2024.
It’s all about aligning company culture with financial decision-making
Down the road, embrace a frugal culture instead of relying on policy-driven controls, emphasizing that behaviour is more effectively governed by culture than by laws. This suggests positively framing cost-saving measures, such as connecting reduced travel expenses to employee benefits while cultivating a sense of financial responsibility at all organizational levels.
In the end, it comes down to aligning company culture with financial decision-making. By empowering managers to set reasonable spending limits without excessive bureaucracy, agencies can foster trust and ultimately enhance both fiscal responsibility and employee satisfaction.
