Before You Cut Heads...

So, inflation is back to the 2% target. The UK GDP grew more than expected in the first half of the year. But business surveys hint at a slower pace of growth, around ¼% per quarter. CPI inflation might rise slightly in the second half of the year as the drop in energy prices from last year falls out of the comparison. The Monetary Policy Committee (MPC) believes the labour market is loosening but remains tight historically.

Indicators of pay growth are easing. Private sector Average Weekly Earnings (AWE) growth dropped from 6.1% to 5.8% from January to April. April is a key month for pay setting, with around 40% of the year’s pay settlements and the annual rise in the National Living Wage taking effect.

Why Does This Matter?

If inflation is around 2% and wage growth is about 6% (with the minimum wage at 9.8%), it’s tough to raise prices to keep up. So, you face a dilemma: reduce pay awards, which is hard due to minimum wage impacts; raise prices, risking sales; or let costs grow with inflation and take a hit on margins.

This is often when companies consider cutting staff to maintain margins. But this is a strategic choice that can backfire.

Cutting heads can stifle future growth, leaving you slow to respond and allowing competitors to gain an edge.

A Better Way: Drive Operational Efficiency

Instead of cutting staff, focus on boosting operational efficiency. UK’s labour productivity has shown a slight increase and is now 1.7% higher than pre-COVID-19 levels. Productivity growth needs to double to match the economy’s growth during the 2010s. This requires investment in technology, innovation, and staff.

Investing in capital will also drive efficiency, and the full expensing of capital allowances can help fund this. However, some productivity barriers are policy-related, like regional skill availability and industry concentration, which the government needs to address.

Leverage Expertise in Indirect Costs

Most businesses have teams focusing on direct costs. For example, if you buy large amounts of steel, you know the best price, supplier, and process to minimise costs. But this level of expertise usually isn’t applied to indirect costs. It’s a significant investment to have a team with deep knowledge across all costs. This is where my team can help.

Our cost specialists are seasoned professionals in their fields, dedicated to their cost areas. They know the right prices, suppliers, and processes. They’re currently running over 16,500 projects across more than £10bn of spend, bringing both a large knowledge base and significant buying power.

We’re so confident in our ability to reduce your costs that we operate on a success-based fee model. We get paid only when we deliver. Plus, we work with you and your teams over 36 months, auditing spends and performance to ensure the benefits we promise are delivered.

Real Results

You might think you’ve already optimised your costs, but we often find that 80% of businesses are overpaying.

For instance, three of my clients in different markets have all saved significantly on their merchant card costs. Our payments team, headed by the former General Manager of MasterCard UK, uses a bottom-up costing approach based on risk profiles to negotiate the minimum cost, adding value to the entire payments landscape.

Its knowing where to look and how to unlock the opportunities.

Would you rather lose some staff members who could drive the business forward or pay 20% less on your merchant card costs?

Our experts work across various areas, including logistics, fuel, insurance, IT, packaging, and waste ensuring our clients get the best value for the investments they make.

Conclusion

Before you consider cutting staff, make sure you’ve maximised operational efficiency and I don't mean a cursory glance - I mean a full review.

If you would like to learn a little more about the sort of areas we uncover opportunities within your industry then please send me a message at jrimmer@eragroup.com