A Guide to Managing stakeholders through cost reduction measures

By Georgia Price, Business Consultant, BJSS

According to Gartner, in the last year, 96% of finance leaders have taken cost reduction measures to counteract the impacts of the pandemic. However, deciding on a programme to reduce costs is one thing. Making change happen – and making it stick – is another thing entirely.

One of the biggest challenges with implementing cost optimisation measures is that it tends to trigger fears around job security. This anxiety has only been exacerbated by the pandemic, which has made job losses a sad reality for many. People are especially resistant to change if they’re worried it could put them out of a job, and during a cost optimisation project that resistance could manifest itself as reduced productivity, poor benefits realisation – even outright disruption in extreme cases.

Therefore, implementing any cost optimisation programme requires a well-defined change management approach focused on stakeholder and employee engagement. Bringing your people along for the ride is fundamental to ensuring the whole process is successful and that the changes stick. Research by Gartner shows that “companies that outpace their peers in long-term profitable growth sustained their operating cost savings for 40% longer than their peers”. In other words, sustaining the results of cost optimisation projects pays off.

With that in mind, this blog will present some concepts that organisations should consider when engaging stakeholders during a programme of cost reduction. It’s worth bearing in mind that change management and stakeholder engagement are broad, complex disciplines that we don’t have the space to fully cover in a single blog. However, the considerations outlined here will hopefully be a useful starting point to help you bring employees with you on the journey of building a better, more resilient organisation.

Understanding how people deal with change

At this point, it’s helpful to take a step back and think about how people experience change. By understanding what people go through, and the path to building new habits, we can better prepare ourselves to manage employees through the implementation of cost optimisation measures.

1. Be prepared for people to react emotionally

Psychologist Dr. Elisabeth Kübler-Ross’s work on grief and bereavement resulted in a model called the Change Curve, which has since been adapted by change practitioners to map the stages people go through when organisational change occurs:

  • Stage 1 – Status Quo: Shock and denial in response to a challenge to normality
  • Stage 2 – Disruption: Fear and anger at how the change impacts them
  • Stage 3 – Exploration: People begin to let go of what they’ve lost, accept the change, and explore what the changes mean
  • Stage 4 – Rebuilding: Embracing the change, adopting new behaviours, and commitment to the new status quo

The first two stages of this process are particularly important in any change management process because they can be the most challenging and potentially disruptive. This is why, when creating a vision for your cost optimisation project, it’s important to understand the impact on employees. You need to plot out these stakeholder groups, what their interests are, and how they’ll be affected by the change.

This is the first step towards designing a stakeholder engagement plan that communicates the vision for any cost optimisation project, what it means for employees, and the benefits it will bring them. Appreciating that people are likely to react emotionally to change can help you create messaging that addresses their concerns.

This must be complemented by clear education about what is expected of employees in the new world, including training on new responsibilities, tools, processes, team structures, etc. It may also help to nominate “change agents” within teams to champion the benefits of any cost optimisation measures.

2. People need time to change

In one of the most cited studies on the topic, health psychology researcher Dr. Phillippa Lally and her team investigated 96 people as they tried to establish one new habit over a 12-week period. Each respondent reported each day on how automatic the behaviour felt.

On average, it took more than two months – 66 days – to form a new behaviour. And, depending on the person, the habit, or the circumstances, it could take anywhere between 18 and 254 days to form a new habit and for it to feel automatic.

The point is: it can take a while for people to form new habits. For many cost optimisation measures, you’re effectively asking employees to change their habits – new processes or tools, new team structures, new responsibilities, new ways of working.

Any change management strategy should therefore consider that results won’t always be immediate. There is a necessary teething period, the Exploration stage of the Kübler-Ross model, during which people must adapt to the change. This is also an area where “change agents” within teams can act as evangelists for new ways of working and support people with any difficulties. Ultimately, the main thing is to allow employees a sufficient window to test out, and build confidence with, any changes to their day-to-day work.

3. People need reinforcements

To adopt new habits, we must sometimes abandon others. William Bridges’ Transition Model conceives of this as a journey from ‘Ending What Currently Is’, when people understand what they are losing and learn to manage those losses, through ‘The Neutral Zone’, a state of flux in which people realign and repattern their behaviours, to ‘The New Beginning’, in which new behaviours are fully embedded, and a new sense of purpose is achieved.

It’s the journey through the Neutral Zone – the Rebuilding stage of the Kübler-Ross process – that requires positive reinforcement to embed and sustain changes to how people work. Any cost optimisation project should thus include follow up activities that continue to encourage people to adopt and stick to new behaviours, such as celebrating successes and providing recognition and reward.

Building Success into cost optimisation measures

An effective change management strategy is a crucial part of any cost optimisation programme. And while the considerations above are by no means comprehensive, they are a good starting point for approaching your stakeholder management activity throughout the cost reduction process. Armed with an appreciation of how employees might react to change, how to help employees accept and explore the consequences of change, and how to embed and sustain new behaviours in the long-term, you can begin building an effective programme of stakeholder management.

You can find out more about how BJSS’ Management Consultants have implemented successful change with clients alongside three recommended approaches for optimising costs in our white paper, Don’t Just Survive, Thrive: Optimising Costs to Perform During Uncertainty.