During times of directional change and cost cutting, the lab manager’s role becomes even more critical. Our job is to make decisions that align with the new direction but also support the organization as it processes unpopular changes. Making clear, smart decisions while retaining trust within the organization is crucial for guiding your team through challenging times.
Organizational costs typically fall into two buckets:
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- Money spent outside the company on services or goods
- Internal costs from facilities, staff salaries, and technical service fees.
Evaluate the magnitude and breadth of cost-cutting you are facing. Are the cuts based on moving away from a specific technical area, or do they represent an across-the-board spending cut? Your actions need to reflect this strategic shift in your mission. Start by thoroughly evaluating each line item in your budget and acknowledging that as your organization scales down, support costs should decrease accordingly.
Where to start: Practical cost-saving strategies
If you are facing modest budget shortfalls, there are many levers you can pull. Expenses from supplies is often the first step. Consolidating supply ordering, reducing rush re-supply practices, and curtailing the use of custom office, lab wear, and clothing are low-hanging fruit in your cost stack.
Partner with your vendors to understand your options; they will be anxious to retain your business and often provide creative solutions. Don’t overlook the budgetary impact of new capital investments, such as equipment or facility modifications. Consider deferring capital expenditures but be strategic. Some capital investments might actually reduce operating costs by providing expanded capacity or reduced cost-to-operate (supplies or staff).
Another bucket of spending comes from your outsourcing partnerships. Outsourced analytical testing, research, methods development, stability testing, and more are important levers to pull when addressing your organization’s new budgetary targets. Remember, the benefit of outsourcing is the flexibility to grow or moderate spending depending on needs at the time. Curtail non-mission critical services and explore ways to reduce the cost of others. Consider reducing costs by outsourcing data collection only, bring data analysis in-house or change to data-only reports instead of lengthy lab reports. These are easy ways to retain the essence of what you need from your partner while being more economical.
Next, evaluate costs for employee travel and development activities. Explore more affordable out-of-pocket venues that are accessible as day trips or available online. Even internal technical seminars or poster sessions can give your team members the experience they need to grow technically and develop leadership skills. Employee development can come in many forms, so don’t neglect developing your organization even in tough times.
Addressing significant strains on the laboratory budget
These spending cut options typically enable modest cost reductions. Most organizations carry most of their costs in infrastructure, staffing, and internal support services. When it comes to infrastructure, understand the actual flexibility you have. Can you reduce your footprint in a meaningful way and cut the associated facility costs (HVAC, ventilation) from your budget? If you rent space and pay directly for facility costs such as electricity, this can be a meaningful lever to pull. Easy-to-implement cost savings from electrical conservativism can come from a variety of sources. Practices such as closing hoods when not in active use, turning equipment off during downtimes, automatic off-hours light shut-off, and limiting personal appliance usage (space heaters and personal coffee makers) can all add up.
If your team is part of a larger company, you will likely have a substantial budget line item for internal shared service partners such as analytical or computational services. Don’t forget to assess the need for current service levels as your direction and staffing changes occur. Also, explore the possibility of funding models such as pay-as-you-go versus yearly allocation to give you more control over your spending in these areas.
For most, however, staffing is the single largest budgetary line item. Before eliminating positions, evaluate savings from managing overtime and reducing contract or temporary team members. If you do need to resort to a staff reduction, ensure you have thorough, up-to-date performance review records to support your decision. Plan staffing reductions that will leave the strongest team possible after changes are in place. Decisions should factor in staff expertise, flexibility, and performance. If budget cuts target a specific technical area, eliminating positions held by highly specialized experts may be the most strategic choice. In any case, ensure performance is a factor in your decision; this will help your team adjust to the changes and have more confidence in their own position. Additionally, work with your Human Resources team to understand other options, such as offering early retirements, buy-outs, or part-time employment.
Organizational outsourcing
If you are facing a reduction target that would decimate your organization, a more drastic alternative is a complete organizational outsourcing. This involves acquisition of people and capital by a third-party company for operation. These moves usually involve selling services back to the original parent company while leveraging unused capacity to sell services to other customers. This process can take more than a year to complete but can delay cuts to retain organizational value. An outsourcing plan allows the parent company to buy services/contract research as needed, resulting in larger potential cost savings and flexibility for the parent organization. Although a dramatic change, it can be the best way to salvage people and expertise to support both the original parent company and a wide array of new customers.
Supporting your team through cutbacks
These challenging times can create uncertainty among employees, and ironically, your top performers may be the most concerned about their job security. Ensure you work transparently with the organization, helping them understand the decisions being made. Remember that your staff will be processing their own emotions and may struggle with the new reality once budget cut changes take effect. Treating those impacted with respect and focusing on future opportunities will help your team make it to the other side.
To conclude, communicate your proposals clearly with upper management to ensure they understand the full impact on expertise and capacity of the post-change team. Don’t be afraid to give them tiered options and help them see the value of scenarios that may not fully meet the target but still provide significant benefits. They may be privy to scenarios being explored in sister organizations. Use these discussions to advocate for talented staff who could potentially find roles elsewhere within the company
Don’t overlook the fact that you will be going through the same grieving process as your team. Leading your team through this transition can ultimately strengthen trust, foster resilience, and create a more cohesive, empowered team ready to tackle future challenges.
