CASE 23-2: What Can We Cut? The executive team of the Drindel Corporation was facing a crisis. International competition was putting tremendous pressure on the company. Several longtime competitors in the United States had already either been purchased by foreign companies or had moved most of their production operations to other countries to take advantage of lower wage rates and production costs. Drindel had operated in the United States for more than 80 years. Managers wanted to keep their U.S. operations and continue to provide jobs for their current employees. However, they also knew they had to find ways to reduce costs to be able to remain competitive and profitable. They had already cut all the costs they could in production and operations and now were turning to a major cost areaâ€”personnel. Drindel had always prided itself on paying competitive wages and offering a comprehensive set of benefits, including insurance, vacations, employee assistance programs, and ongoing training. As a result, Drindel employees were very loyal and the company had one of the lowest turnover rates in the industry. However, the cost of wages, benefits, and human resources services was the one remaining area that Drindel executives felt they had to examine carefully. These were the choices they considered: a. Ask all employees, including managers, to take a 10 percent reduction in wages and salaries to bring those costs near the industry average. b. Ask employees to pay the full cost of health insurance. Currently the company paid 80 percent and employees 20 percent. The total monthly cost of health insurance through the company was lower than what employees would have to pay if they purchased it individually. c. Give each employee $200 per month to spend on any benefits they chose. That would reduce the companyâ€™s cost of benefits by nearly half and allow employees to pick those most important to them. If employees chose no benefits, they would be paid the $200. d. Reduce the size and cost of the human resources department by eliminating all employee assistance programs and the personnel who provided them and by cutting the amount of training by 50 percent.
THINK CRITICALLY 1. Why do you believe Drindel executives were attempting to protect their company by cutting personnel costs rather than choosing their competitorsâ€™ strategyâ€”moving operations to another country? 2. Evaluate each of the choices in terms of its possible effect on the company and its immediate and long-term cost savings. 3. If you were a Drindel employee, which option would you choose? Why? If you were an executive, which choice would be best for the company? Why?