10 Bizarre But Effective Corporate Cost-Cuts

Companies
10 Bizarre But Effective Corporate Cost-Cuts

It has been years since the start of the recession, but the recovery has been slow and the business world is in flux. Many companies have laid off employees in an effort to cut down on costs. Others have weighed the benefits of retaining a productive team and decided to look for other ways to cut costs, rather than have to let go of good workers. Some of these employers have come up with remarkable, innovative, or downright bizarre tactics to cut costs.

A recent example: a Walmart’s charity food drive – organized for Walmart staff. The event, naturally, wound up getting the company in some trouble online, with a memorable, heated Twitter exchange between Ashton Kutcher and Walmart highlighting the absurdity of rich companies’ employees struggling to put food on the table. Still, some saw Walmart’s charity effort as an instance of creative marketing that created a generally positive impact on a majority of consumers.

Other unusual cost-cutting measures that have been found to be effective include strategies like reducing the work-week to 3 or 4 day work-weeks, offering unpaid leave and mandatory vacations for employees, hardballing when it comes to choosing supplies from vendors, flexible scheduling and work-from-home options for employees, and reducing or eliminating executive-level bonuses.

The objective behind opting for these measures rather than layoffs is easy to understand. Profit-making in a teetering economy is hard as it is. Letting go of good workforce seems to be counter-intuitive to these out-of-the-box employers. The process of re-hiring and training a new set of employees after the recession passes creates its own problems. Additionally, employees are also particularly tolerant of the penny-pinching measures employers are taking. Most are willing make a few sacrifices – such as pay cuts – in exchange for the guarantee of still having a job 6 months later.

Of the many unusual (but effective) cost-cutting methods, here is a roundup of 10 of the most bizarre cost-cutting strategies employed by big businesses.

10. Ryanair: Urging air-hostesses to slim down to save fuel costs (Savings yet to be measured)

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Ryanair is known for its bizarre cost-cutting methods. Some recent suggestions that (thankfully) haven’t been approved include coin-operated restrooms, removal of arm-rests, and offering X-rated films on-board. The latest effort of the airlines to reduce the load on fuel is to encourage air-hostesses to lose weight – and get the chance to appear on the annual Girls of Ryanair calendar. This may be a bizarre approach to saving on fuel, but it fits with the company’s philosophy. Ryanair is an active supporter of the controversial ‘fat tax’ that would charge overweight passengers for adding extra mass to the airplane.


9. American Express: Paying customers $300 to cancel cards (Undisclosed savings)

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Back in 2009, credit card companies were floundering with spiking mortgage defaults and the specter of increasing credit card defaults. In a bid to shed off some members who had reasonably sized balances but little spending activity, AmEx offered an undisclosed number of people a $300 prepaid AmEx gift card to voluntarily cancel their cards. The company wouldn’t disclose the criteria for choosing the recipients of the gift card. Unfortunately, a downside of accepting the offer was the damage it would cause to the customer’s credit score.


8. American Airlines: Removing an olive from every in-flight salad (Alleged $40,000-$100,000 savings)

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Surely an olive or two missing from your in-flight salad would not make much of a difference to you, but to American Airlines, serving one fewer olive per salad translated into annual savings of at least $40,000 –as high as $100,000 – back in the 1980s. Post 9/11, the airlines industry was doing poorly and airlines had to struggle to break even. Former AA chief Robert Crandall made a number of cost-cutting decisions. The one involving olives has gone down in history for being a bizarre, simple, and yet incredibly effective idea.


7. Ryanair: Reducing in-flight magazine size, serving less ice (Savings over $650,000)

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With the price of jet fuel skyrocketing, no-frills airlines like the Irish charter Ryanair are constantly looking to find ways to keep profits at a maximum – hence Ryanair’s series of bizarre cost-cutting exercises. One of the latest: printing the in-flight magazine on narrower A5 paper. The magazine will also double as a menu. This move is estimated to cut printing costs by as much as $650,000. Other efforts to reduce in-flight weight include serving less ice on-board, ultimately reducing the fuel bill by hundreds of thousands of pounds.


6. Cleveland Clinic, Ohio: Smoker-free employment policies (Saves up to $3,391 per employee per year)

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If you thought there was too much discrimination at some workplaces in terms of gender or sexual orientation, you might be surprised at how some common personal habits are affecting chances of employment in a bid by employers to cut costs. Many hospitals are choosing to bar employment to smokers. A prime example is the multi-specialty Cleveland Clinic in Ohio, ranked one of the top 4 US hospitals. Since 2007, the clinic has not hired smokers. It’s estimated that smoking can lead to productivity and health expenses of around $3,391 a year for an employee, which can add up to a significant expense for a large company. Many other organizations are now following suit with their own smoker-free employment policies.


5. Delta Air: Refining their own oil  (Additional $3 million in profits)

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If fuel is too expensive to buy, why not make your own? This was Delta Air’s reasoning behind the recent purchase of an oil refinery in Trainer, Pennsylvania. While the purchase of the refinery does not protect the airlines from fluctuations in oil prices, it reduces the significant cost increase between crude oil manufacture and the refining of jet fuel. The initial cost of the purchase may have been big, but the investment is starting to pay off: the refinery posted a $3 million profit for the third quarter of 2013.


4. Indiana University Health Goshen: Commissioned cost-cutting ideas from employees (Savings of $6.3 million in 2010)

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Not especially bizarre, this cost-cutting story wins a high place because of its immense savings and the unconventional approach to it. The Indiana University Health Goshen’s 1998 initiative called The Uncommon Leader continues to have employees submitting cost-cutting ideas, and sharing with them a portion of the savings that their idea generates. Since the inception of the program, the hospital has implemented numerous changes, like changing the type of napkins on patient trays, swapping disposable gowns with cloth gowns, and ordering bulk generic drugs in place of some brand name drugs. The program has resulted in a savings of almost $35 million over the years, and $6.3 million in 2010 alone. To top it off, the CEO claims that not a single employee has been laid off in 17 years.


3. Yahoo: A Week’s Unpaid Christmas Leave in 2009 (Savings of $21 million that year)

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In an effort to cut costs, Yahoo gave its employees a week of unpaid leave between Christmas and the New Year in 2009. With 10,500 employees and an assumed average wage of $2000 a week, the total savings to the company would have been north of $21 million in that week. What’s more, everyone benefited from it – the employees were able to enjoy a guilt-free holiday during the holiday season, and the company saved costs while bringing down unused vacation time.


2. Motorola: Executive pay cuts (Savings of $100 million annually)

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Motorola is one of the many big businesses that had its top level executive leaders share the sacrifices made by lower level employees in the face of the recession. Motorola froze its US pension plans, and executive pay was cut by 25% in 2009, achieving an estimated savings of $100 million annually. The move to cut executive costs had 2 benefits: short term, it increases cost savings. If the pay cuts make its way into regular employee salaries, it creates an added incentive for employees to stick around.


1. Cisco: 4-day Year End Shut-Down (Estimated savings of $1 billion)

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In 2008, Cisco observed a 4-day year-end shutdown scheduled between December 29 and January 2 in a bid to save $1 billion dollars. The holiday shut-down was implemented at a time when Cisco was also employing other cost-cutting tactics nearing the holiday. The shutdown move was to shift liability from the balance sheets into a cash expense. Other cost-cutting tactics that year included cutting travel costs, Christmas and New Year parties, and calling off their global sales conference, which is held annually. Unlike other companies, such as Yahoo, the mandatory leave was not unpaid.