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BY PAVLOS LOIZOU
Leaf Research
Most Cypriots are only now acknowledging the degree of the problems we face. How they respond to this realisation is another story altogether. Let us think through how a manager should tackle this new “realisation”.
I believe that the main issue they need to tackle first is the question that is being asked rather than the problem itself: “what do we do to make the company profitable”. This question is likely to lead to the following rationalisation – given that most companies in the services sector have high fixed overheads (rent for offices, electricity, water, payroll, etc) and minimal variable costs (travel, office supplies, etc), the only possible answer is to lower fixed overheads. As the largest fixed overhead is payroll, the logical response would be to either reduce salaries or reduce the staff count.
Given the rigidity of most Cypriot companies (they tend not to be efficient), cutting staff numbers is unlikely to help or be productive, which effectively leads you to the only “choice” which is reducing salaries. This is likely to cause extreme unsettlement to the staff and make them even less productive. Simply saying to someone to work for less money or they will lose their job is not an incentive if you don’t help them be more productive at the same time.
The question that should be asked is “how would we set up the company in order for it to be profitable”, i.e. assume a blank canvas. The change in the question adds emphasis on how things should be done, rather than having to think things through bearing in mind the existing situation/ infrastructure. This approach should give you a new company structure and allow you to see who and what from the existing structure you can use in the new one. It could be that a company needs a smaller office count, that some people must go, but others must come in to fill places for which the company doesn’t have the staff with the necessary skill-set, etc.
Any manager that goes down the first route will enter into a myriad of problems, as salary reductions will result to older/ experienced staff becoming deflated and younger staff looking to leave the company at the first opportunity they get. The company is also likely to continue to have monetary losses, as the reduction in operating expenditure (payroll) is unlikely to suffice in order to counterbalance the company’s inefficiencies.
Whilst it is tempting to approach this “problem” by thinking through what resources and structure you have at hand, it is also confining and could also prove costly in the medium to long run. Take the time to think in a more strategic manner.
