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Firms Shift Focus To Voluntary Redundancies And Outsourcing

Survey Reveals Greater Use Of Innovative Restructuring Methods


UK businesses are three times more likely to encourage voluntary redundancies and twice as likely to outsource loss-making services during the next 12 months compared to two years ago – according to a new report by Irwin Mitchell.

The study of over 320 senior business decision-makers, which was launched to investigate employee restructuring techniques, also found that a third of businesses had made compulsory redundancies in the last year, with 75% of those questioned also using a range of alternative cost-saving techniques.
As a result of the current economic uncertainly - highlighted by seven out of 10 firms saying that they are ‘less confident’ or expect ‘no improvement’ in the UK economy in 2012 –  over half (54%) said that they are either clear about or uncertain about being under pressure to reduce staff overheads in the next year. Eighteen percent added that they were ‘quite likely’ or ‘very likely’ to make compulsory redundancies during the same period.

Out of those businesses stating that they needed to reduce their employee cost base over the next 12 months, 55% said that they would introduce a voluntary redundancy programme. This compares to 16% of companies who did the same during the last two years.

The report also saw a sizeable increase from 10% to 21% in the proportion of businesses preparing to outsource their loss-making services.

In addition, the survey found that firms are more likely to cut down the use of agency workers, freeze pay, grant unpaid absences, remove other benefits such as bonuses and reduce staff hours in the next 12 months compared to two years ago.

Commenting on the survey’s findings, Tom Flanagan, Irwin Mitchell’s National Head of Employment, said: “Businesses have been using more inventive solutions than redundancy when tackling staff costs but more now seem to be focussed on some form of redundancy programme. Perhaps this is an indication that they think that they have now exhausted alternative solutions. 

“Nevertheless, there are signs of more inventive thinking.  Many alternatives can involve changes to employment contracts but well planned and executed change programmes can succeed.  The significant increase in potential outsourcing also shows that some businesses are taking a wider view of the economic downturn. Challenging times create inventive solutions.

“Organisations appear willing to try alternative approaches but with the economy showing signs of further contraction and levels of uncertainty increasing, businesses seem to be combining these with more structural and traditional changes to their workforce.”

Steve Gilroy, Chief Executive of Vistage International (UK) Ltd, the CEO coaching organisation, added: “These findings certainly mirror what we see in the Vistage community. Vistage CEO members are being more inventive in their use of resources. Flexible working, greater use of self-employed/freelance workers, re-engaging with retired workers and a more dynamic view of staffing are all techniques that are being used by businesses that are prospering during these uncertain times.”

 Other key findings of the survey include:

- 78% of firms said that they had saved jobs as a result of implementing cost-saving restructuring techniques.

- 44% said that they would or might have restructured differently if they had the opportunity again, but this was largely on the basis that they would like to have done more and acted more quickly. 

- Outside of compulsory redundancies, the most popular method used by businesses to reduce their employee cost base during the last two years was freezing pay rises.

- Freezing pay rises is expected to be even more prevalent in the next 12 months.