Why temporary spending cuts don't help agencies

“If I had to live with this solution for a long time, would I be willing to?” - Peter Drucker

Temporary spending curbs don’t work because most senior people in agencies can’t wait to start spending money again.

Agency life can be hard: a first class train journey, a long lunch and a nice hotel could sometimes be considered perks that make agency life bearable.

When it’s communicated to staff that cost cutting measures are temporary, it doesn’t create reassurance that controls are in place: it creates panic that controls are necessary at this moment and that the agency is struggling.

Then, when the agency’s costs are brought under control, it creates confusion about what is allowed. This is especially true when staff note that senior people seem to have started spending money again and it hasn’t been communicated to the wider business that the situation has improved.

Then, when the agency’s now-healthy status is eventually communicated to all, it creates the feeling of “open season” and everyone asks for everything they’ve been waiting to ask for all at once.

So management must consider whatever situation the agency finds itself in as the “new normal.”

Sometimes, particularly since COVID-19 and our War President, it isn’t clear what the new normal is going to be. But even if the world largely returns to how it was pre-pandemic, isn’t a culture that defaults to not spending the company’s money a desirable thing?

Temporary travel bans can be replaced with a permanent culture of travel resistance, where not spending money becomes the default and travelling to clients or new business meetings requires a business case or, ideally, a charge to the client (assuming that clients even want in-person meetings). Either way, we should be facilitating that conversation with clients directly, rather than jumping (on a train) when they say jump.

This has to be lived by those senior people who love spending money: they have to find new perks of the job instead.

Decide now what your agency’s attitude to money will be and start to make changes. A review of the travel policy in good times, publicised internally, will not create the same panic as wholesale cost-cutting measures. If you can communicate to your team what you expect the savings to be and how that money can improve their lives, so much the better.

Try this on: “we know that you’re in demand and other companies would love for you to join them. We’re committed to paying you fairly so we’re always looking for opportunities to reduce waste in our processes because that means we can fund salary increases now and in the future.”

You were going to have to give those increases anyway. Now, they’re budgeted for!

Want something more concrete? “We’re spending £X on travel and we think that’s 50% higher than it should be, so for every month that we spend less than £Y on travel, the agency will contribute £Z to a fund for new home working equipment/training/social events/something else you want and that we want to give you if we have the cash.”

Take some time to categorise the vacancies you’re advertising as critical and non-critical (remembering to stress that everyone is equally important once they’re on payroll): “we’re pausing all non-critical hires until X time as a precautionary measure” is less scary than a complete hiring freeze. It’s also less damaging to your recovery and return to growth, since lead times for recruitment are always increasing and you really don’t want a standing start. Consider offering a hiring bonus for critical roles only (it’ll still be cheaper than a headhunter). Let management decide which roles are critical, depending on the agency’s strategy…or get used to all billable vacancies being critical and all admin hires getting paused first. Maybe that bod in finance could stop similar issues happening in future.

Culture for dollars

Frugality is a necessary part of every agency’s culture because the agency model doesn’t yield high enough margins for it to be any other way…and the agency’s spending habits are an issue of culture, not policy.

Peter Drucker says that “a country with many laws is a country with incompetent lawyers.”

Constant policy reviews are a waste of senior bandwidth. The burden of enforcing that policy typically falls on a few people in Operations, Finance or HR, whose full-time job becomes disappointing people and saying no to things.

Other senior people tend to send staff to “the enforcer” even when they already know the request is going to be declined because they can’t bear to deliver the bad news themselves, which wastes even more senior time.

A frugal culture empowers even insecure managers to say “that’s not how we do things around here” when they’re presented with an unreasonable request for some budget. When staff believe that the person they’re asking for funding actually has the authority to grant a reasonable request, they’re usually inclined to be more reasonable in the first place.

Businesses get more bureaucratic as they grow because they need to prevent a single individual from sinking the whole ship. Agency staffers are presented with very few opportunities to actually cause that much damage and, whether in wasted time or increased administrative burden, bureaucracy costs the agency money.

Think about processes that create excessive administrative burden and ask how the culture could replace the administrators.

Returning to our chosen example of travel (and how to do it badly), the agency will set a limit on expenses; the maximum amount that can be spent on a night in a hotel, for instance.

However, in order to keep costs down as much as possible, it will book hotel stays centrally. This might involve hiring an administrative assistant of some kind (who, if paid the real living wage, will cost the business more than £2,000 each month) or increasing the workload of the Finance team, which usually results in a hire. The new hire, of course, gets buried in the “staff costs” where it’s not noticeable, instead of in the travel costs, which are being scrutinised. It’s a false economy.

The administrative assistant will be instructed to book hotels up to that budget, ideally less; they will also book transport, such as trains, with the cheapest possible price front of mind. There will either be back and forth between the assistant and the staffer who will confirm which ludicrous times of the morning and night are actually doable for them to catch the train; or there’ll be no back and forth and they’ll just be pissed off that they’re either rushing to meetings because the train that got booked for them departs well after 9am, or they’ll be sat around for hours before meetings because it’s at 6am.

If the culture of the business was instead to trust employees to choose their own hotels and trains, with people (up to and including the CEO) expected to travel standard class at a time to suit them and to stay in a hotel that they’d be happy to pay for if they weren’t able to expense it, the business would likely save money and have happier staff.

If the culture of the business was to do things remotely where possible and to push back when they’re expected to be on site at short notice, the business would definitely save money. When it’s the travel policy that dictates that someone has to push back to the client, they either feel like they’re the one taking the fall, or they bend the rules. When culture dictates it (and “this is the way we do things around here”), they feel like they’re the one with the authority. Documents don’t hold staff accountable…colleagues do.

The intention of the policies should be communicated to all levels and then managers must be trusted to make decisions about spending. Whether they can personally live with the consequences of a decision for a long time is probably a good test.