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As businesses strive for success, it’s natural to look for ways of saving money.
But cutting costs can be a tricky thing. When taken too far, you can find yourself in an even worse financial hole than before.
Companies around the world have tried cost-cutting tactics ranging from efficient streamlining to downright ridiculous scrimping and these strategies often come with sobering or catastrophic consequences.
Join us as we explore 15 cautionary tales of companies that took frugality so far they went over the edge!
#1. Not Hiring Moving Company
In this instance, a business was moving and it decided it could save a lot of money by having its employees move everything instead of paying a moving company.
Plus, it will be a good team building exercise.
All this backfired when a handful or workers were injured during the move.
In the end, the company paid close to 20 times more because of medical, legal, and other costs.
#2. Cutting Incentives For Workers
For some reason, management often thinks removing incentives is a simple way to save money and won’t impact worker output. But this is usually not the case.
This played out at a distribution warehouse.
An incentive was in place for workers to work fast and accurately. They were great at doing this. But then, someone had the idea to remove the incentive. The performance quickly declined. Instead of reinstating the bonus, they tried to make an example out of some workers by writing them up with warnings. Some of the workers, furious with what was happening, quit and went to a competitor.
Many others followed suit, so now orders were delayed because of a lack of staff in the warehouse. Management tried to resolve the issue by hiring temp workers, but they didn’t care about the job, were slow, and made many mistakes. Long story short, the company lost millions of dollars and was on the verge of bankruptcy.
#3. Turning Off HVAC To Save Money
This is an example of not thinking through the long-term impact of your decisions. One person commented that his company wanted to lower its electric costs. They knew that heating and cooling the office was their largest expense, so they decided to focus on that.
While the company did save money in the short term, it was a costly mistake. Running the air conditioner in the summer helps to remove humidity from the air.
Without it running, mold can form. And this is what happened. The company had to pay over $1.5 million for mold remediation.
#4. Cutting Maintenance Costs
Warehouses are full of inventory, and for some people in management, this is wasted money, especially if the inventory is spare parts for repairing machines.
But something breaks whenever you reduce the inventory, and now you don’t have the parts to make timely repairs.
As one person shared, “My company ran a campaign for’ outside the box’ ideas in cost cutting, with stock awards for proven savings. Our facility maintenance manager claimed a $300k savings by eliminating unnecessary capital spare parts in the warehouse and received a $30k award. Six months later a critical compressor failed resulting in the plant reducing to half capacity at a $500k per day profit loss. It would only take two days to repair, however, the parts were no longer in the warehouse. They were among those eliminated and sold for scrap. It took 90 days to receive replacements. Total loss to our company was just over $50 million.”
#5. Reducing Travel Expenses
The cost of travel for employees can be a large part of a company’s budget, so it makes sense to figure out ways to reduce this cost. But sometimes, what seems like a good idea ends up costing more.
One person shared a story about how their company made a deal with a hotel chain to get rates at a discount. This sounds great, but sometimes that hotel was farther away from where the client was, so there were added costs for car rentals and, in some cases, flights.
Another time, a company required salespeople to fly into the closest airport, presumably to cut down on car rental costs. But they should have taken into account that some of the time, the cost of the flight was twice as expensive to fly to the closest airport.
#6. Refusing Raises
I’m not sure what management thinks will happen when they refuse to give raises to their staff. Even if the business finances are poor, you can at least explain this to your workers and promise to give raises when able to. Of course, you must follow through on this promise. Otherwise, you have a bigger issue.
Still, many companies flat-out refuse raises, and it ends up costing them money.
“At my company, a guy was a hard worker, did the job of three people. He asked for a raise and the president instead gave him spending advice. ‘Instead of going to the movies with your family, go to the beach, it’s free!’. He ended up quitting for a better job and they had to hire 4 people to do the same job he did, each one of them were paid more than he was.”
Another person shared, “My company stopped giving lower level staff pay rises. All of the staff were very specifically trained on our product. Years of tenure and experience behind them to help customers with. Most of the tenured staff left, and they now have a constantly revolving door of staff, which they pay a fortune to train, only to see them leave 6 months later.”
#7. Not Hiring Enough Workers
While a company can save big bucks by hiring as few people as possible, this idea usually ends up badly.
The workers get burnt out and either start making mistakes or they begin to quit.
Both are costly to a company, and over time, this adds up to more than if they would have simply hired the right number of staff to begin with.
#8. Trying to Reduce Regular Expenses
Another way many companies have tried to reduce costs is to buy less expensive items to save money.
One common area this shows up is with plastic bags.
A company decided to buy less expensive plastic bags, but the quality was subpar.
This resulted in workers needing to double bag everything, meaning they now go through their stock twice as fast and not saving any money.
#9. Annoying Customers
Too often, companies look at their bottom line only to make decisions.
In the moment, the decision to cut services or other support sounds great.
But what ends up happening is they annoy their loyal customers who find alternatives.
The result is a company that struggles to survive because they forgot about the people who buy the things the company sells.
#10. Hiring Outside Consultants
A lot of companies bring in outside consultants to review the processes and spot inefficiencies.
The problem is they don’t fully grasp how the company runs and ends up making so many recommendations that the company is worse off or out of business a few years later.
#11. Not Looking at The Big Picture
One worker shared how his supervisor refused to pay for a 3D printer that would cost around $500.
Instead, they outsource the printing at around $250 a month.
If this isn’t bad enough, the employee is qualified to use such a machine.
So now, he sits for days with no work, waiting for the item to be complete.
It would be cheaper to buy the printer and let the employee do the work.
#12. Saving Money By Cutting Corners
When repairs are needed, the temptation is to cut corners to save money. This is what happened at one person’s place of employment.
“The roof of our building was leaking badly. The company got quotes for doing just a third of the roof and for doing a whole new roof. They choose to do a third of the roof. All it did was move the leak. A month later they did the whole roof. They would have paid a lot less had they done it right the first time.”
Another person added, “I’ve seen commercial kitchens use duct tape and prayers instead of doing routine maintenance on equipment. Then the equipment fails at a critical time and new equipment has to be ordered and paid for as a top priority.”
#13. Outsourcing Call Centers
One of the biggest pet peeves of most people is calling customer service and getting someone on the line who is not fluent in English, and as a result, getting help is nearly impossible. Yet even with this frustration, this cost-cutting move is a management favorite.
“We were one of the only companies in our line of work that only operated in the US, and customers loved us for it. Their customer base cut down by 1/3 within 2 years of outsourcing, and now they are hanging on by a thread. I wouldn’t be surprised if they went under within the next 5 years.”
#14. Not Hiring The Best Candidate
Sometimes, the best person for the job is the one who demands the highest pay.
Sadly, some companies will opt for the lesser talent to save a few dollars.
The problem however, is that the company ends up spending more money in the long run because other workers are spending time helping and cleaning up mistakes.
#15. Saving Money On Cheap Labor
Another significant expense businesses face is labor costs. It’s well known that companies will force out older workers who are earning a high salary and replace them with younger workers who they can pay less.
But this plan backfired on one company.
“One department in my company decided to lay off a bunch of veteran people so they can bring in newer workers for cheaper. But they found they couldn’t bring in newer people for cheaper, so they hired newer people at close to the same price as the veteran workers. The veteran workers were mad they had to train somebody making almost the same as they are with no experience and started leaving. The company had to pay the few remaining veteran workers even more to get them to stay while paying inexperienced workers close to what the worker’s they just laid off were making.”
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
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