Digital transformation, employee retention can reduce costs

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Persistent inflation, rising prices and other key macroeconomic factors are leading businesses to brace for the impact as experts predict the US economy will enter at least a mild recession in early 2023 .

Companies are looking at workforce cuts as a way to trim expenses or restructure businesses ahead of a more favorable economic period; recent reports found banks like USAA downsizing their banking division, for example, while a slew of big tech players including the likes of Amazon, Peloton and social media platform Meta have cut staff or instituted hiring freezes.

However, while preserving one’s own cash flow and minimizing cash burn is critical for companies facing these economic pressures, workforce reduction is often “wise and unwise” for to businesses looking to achieve savings, Matt. ArmaniCEO and partner of accounting and consulting company Armanino LLP he said in an interview.

Many businesses are considering downsizing ahead of the next recession: 80% of hybrid businesses and full-service businesses, respectively, said they intend to lay off staff during the economic downturn, according to a published study Thursday by the freelance platform Fiverr.

However, the ever-higher costs of hiring, training and retaining new workers make “reducing the workforce a very, very expensive way to try to find savings,” Armanino said.

“Our advice to companies is to apply a lot of foresight before cutting the workforce,” he said, noting that cutting employees now only to hire them back after this potential recession, which may not very deep or for a long time. Increase business spending as they work to rehire and rebuild.

The country’s economy shrank for two consecutive quarters, contracting 0.9% in the second quarter after a 1.9% drop in the first three months of the year, meeting informal definitions of recession

Experts, while predicting a downturn in that period, remain divided on how long a recession will last, theorizing anywhere from all of next year to just a few months.

In addition to rising prices and persistent supply chain issues, companies are also currently facing struggles to secure the best talent in a tight labor market, further driving employee retention.

Payrolls rose by 528,000 in July, while the unemployment rate fell to pre-pandemic levels of 3.5%, dispelling some recession fears but likely failing to convince the likes of the Federal Reserve to ease expected rate hikes to meet its 2% inflation target.

Retaining top talent is therefore an increasingly high priority for businesses today, with a recent PwC report finding that 38% of business executives identified talent acquisition as a top risk, slightly behind cybersecurity, with 40% of leaders agreeing that it was the no. 1 risk your organizations face.

Nearly two-thirds of executives have changed or are planning to change processes to deal with labor shortages, the study also found.

Taking steps to invest in technologies like artificial intelligence that can take over repetitive or time-consuming processes rather than reducing the workforce can help companies weather an economic downturn more successfully.

Investing in processes like digital transformation “often has an immediate effect on labor costs and savings,” Armanino said. Deploying technologies like artificial intelligence can help generate cost savings and provide a short-term return on investment for the business, he said.

“Companies that are shutting down these initiatives because the economy is slowing down are missing an opportunity, [from] our perspective,” he said.

Striking a balance between skilled workers and investment in key technologies or tools can help businesses reduce costs while preserving cash flow.

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