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Usually, wisdom dictates that you have to spend money to make money. Still, too often, businesses make the mistake of going overboard with a cost-saving measure that backfires on them badly. Users on a widely known Internet forum were very willing to tell the stories of how companies where they worked made this terrible mistake and paid the price for their greed.
1. Per Diem
Speaking of thrifty people, here’s an example where intelligent employees gamed the system for extra cash, but their employer didn’t appreciate their ingenuity. Finally, an amused employee explained how employees at the company got a travel per diem.
According to the employee, they would take advantage of the hotel’s complimentary breakfast, buy a cheap lunch that could be split into two meals to take care of dinner, and then keep the rest of the money. The per diem was theirs, so they figured they could do what they wanted to do with it. In this case, what was good for the goose was not good for the gander; however, the employees got the last laugh.
This upset management at the company, which then changed the policy from the per diem and made the employees submit expense reports. However, since the procedure had to be applied fairly to all employees, including the sales staff, they couldn’t limit the expense charges because of business meetings where sales took clients out to eat.
This meant the same employees had no cap on what they could expense for meals, so they ate “like kings.” As a result, the company paid twice the amounts in expensed meals they had previously been paying in per diems. Oops.
2. Routine Maintenence
This user tells the story of how management decided, seriously, to only fix part of the roof of the building. Yeah, that wasn’t a good idea. He stated the building’s roof was leaking horribly.
He said he got two quotes to fix the damage, one to fix a third of the roof and one to replace the entire roof. Of course, the company’s management chose the cheaper route and only fixed one-third of the roof. What happened? Well, the leak was still there. It was just leaking in a different spot.
They had no choice but to repair the entire roof about a month later and spent even more than it would have cost to fix it the first time. Trying the cheap way and neglecting maintenance never works out very well as a strategy. You always end up paying for it in the end.
Talk about shooting yourself in the foot. You can imagine this former employee shaking their head sadly at the company that set itself up for a lawsuit. When another employee told the story of how the company they worked for decided to deduct money from an employee’s pay, it was a terrible idea.
The company asserted that since the employee neglected to complete a task, it was their fault, and they owed the company money to make up for the mistake.
The employee didn’t see it that way, got a lawyer, and filed suit. They came in hard legally and took the company to court. During the trial, they made the case that it was the company’s negligence because they didn’t set up the proper procedures and checks and balances to prevent this.
The employee proved their point, won the case, and was awarded significant damages that equaled much more than the error cost the company in the first place. Everyone knew that the company was the party that was at fault. The user left the company because they didn’t believe in their judgment and realized the company might lay people off because they would lose badly.
4. Outsourcing For The Win
This common practice became a bigger hassle for more than one company. Here’s just one example of how stinginess can come back to haunt you. One company outsourced its call center to South America after gaining a large and faithful customer base for remaining in the United States.
That move ended all of the customer goodwill, and they lost a third of their customer base within two years. As a result, the company is barely in business now and may go out of business soon.
Another cautionary tale is when a company can’t leave well enough alone. This fiber optic company successfully outsourced its phone centers to Ireland, with English-speaking employees with accents that Americans find charming, saving the company 40% and breaking sales records.
But that wasn’t enough. They discovered that the company could save more if they went to India, so it greedily wanted to increase the profit margin even more. They had not considered how difficult it would be to put a call center in a smaller town in the country.
The profit margin would not be large enough if the company opened in one of the larger cities in India. So they decided to go to a town outside of the big cities. Opening the center took four times the time it should have, and the communication infrastructure was terrible.
Equipment was stolen from the construction site nightly, so they had to hire extra security. Unfortunately, with all the additional costs, security, replacing equipment, lousy call quality, and the staff’s accents severely reduced profits.
5. Temp Work
One contributor had a fantastic but long story about how the management’s contempt for the workers they considered unskilled labor cost them a pretty penny. For example, a company with a distribution center didn’t think that the warehouse employees, known as pickers, were skilled labor even though they kept the business going with their skills.
They worked fast, had high accuracy, and were excellent employees. This user went out of their way to care for them because he realized their importance to the company.
Management suddenly decided that the incentive pay program, which rewarded them for their work, was costing too much and making too much money, so he canceled the program and then increased the percentages they had to meet daily.
He thought this was their job, and they should go above and beyond without incentive to drive them. So rather than realizing that their work made the entire operation possible, he tried to penny-pinch and force them to work for less.
This less-than-popular move angered the warehouse staff because they counted on the incentive money to pay their bills. They were now held to a standard over and above their pay grade without the money to compensate them for their excellent work.
Unsurprisingly, the pick rates at the facility fell rapidly because there was no reason to kill yourself for a job that didn’t pay a living wage in the first place.
The slowdown in picking at the warehouse started to affect delivery routes as the warehouse became short-staffed because they lost the best employees who couldn’t afford to work there anymore. As a result, customers weren’t getting what they ordered, and their anger was directed at the people working in sales.
The sales team was livid that the customers were taking their anger out on them. During a meeting with the sales team, the “walnut” who changed the policy told everyone that picking wasn’t skilled labor and that they would hire temps, who would appreciate the opportunity to take up the slack.
In a few months, with truly unskilled labor in the warehouse that caused errors in the delivery chain, the company started hemorrhaging customers and sales staff, costing the company millions of dollars. Ultimately, the company was forced to fire half of the team because of the enormous losses in an attempt to keep the company open.
6. Moldy Ideas
Mold is an environmental issue in buildings, and it is hard to correct on it takes hold. It can give employees long-term health problems and damage the structures. But that didn’t stop the management of this company from trying to pinch a few pennies.
One frustrated employee said that the company they worked for had the bright idea to shut off the HVAC system to save on electricity costs during the summer. As a result, the company was forced to pay over half a million in mold remediation costs. That’s pure genius at work.
7. Spend Money To Make Money
One rule of business that is less well known is that you need to have enough money to pay the company’s expenses, or you shouldn’t be running a business. Regulations are laws for good reasons. But this employer didn’t think so and got burned.
For example, the boss at one user’s company was known to be a cheapskate, always trying to avoid paying for licensing and following regulations whenever possible. It wasn’t until the boss refused to pay $5,000 for a license to operate in particular states that their suppliers cut our contracts.
This caused the loss of hundreds of clients, and the company lost hundreds of thousands of dollars in revenue because the company refused to pay that one relatively small fee.
8. Firing People And Then Begging Them To Come Back Is Bad Business
It’s not just that firing employees as a cost reduction measure is inadequate planning, but expecting those same employees to train their replacements is not wise. Unsurprisingly, this could have gone better for this company.
This tale of a Fintech company that sent its jobs to India had a typical and unpleasant result. To make matters worse, they expected the employees who would be fired and replaced by the new Indian employees to train their replacements for three months.
Fast forward to a month after the employees were released, and the company desperately tried to rehire them. From a legal standpoint, it would have been a 12-month contract because they had already been issued a severance package, but nearly every employee told them no.
One of the few who took the deal has told harrowing tales of how bad things are at the company and referred to it as a death spiral since most of the company’s clients bugged out, and those who stayed are unhappy and want to leave as well. In addition, the company only has four employees to service a queue that 35 people once managed.
9. You Did What?
This terrible decision should win a medal at the awards ceremony for bad ideas. The management at this particular company stopped giving raises to lower-level staff, who were highly trained in the company’s processes and procedures and very valuable to the organization but not valuable enough to be adequately paid.
Most of the staff had been at the company for many years and had a depth of experience that made the company successful. But after they discovered they would be denied raises in the future, they left the company.
This policy results in a revolving door of staff that must constantly be trained at great expense and who usually leave the company quickly when they find that the job has no future.
10. Club Night
Nightclubs are specialty business that comes with a fair amount of risk. It shows that skimping on security when you own a nightclub will not just cost you money. The situation could become so bad that you may lose your business entirely.
You would think that skimping on security would be the farthest thing from a nightclub owner’s mind, but, in this case, the owners unwisely decided that security was not a priority.
The head of security said the owners were “tight-fisted” and refused to hire enough staff to keep the venue and the customers safe. Even the local police and fire department told them they needed more security, especially in an emergency that would require the evacuation of the building, but they didn’t listen.
While the owners realized a profit of about $45,000 a week, they refused to buy radios for the security staff to communicate, leading to many unpleasant incidents. Without a proper number of security guards, they were fighting a losing battle every night.
The head of security found some radios second-hand that could be used, but even at a lower price, the owners still refused to buy the equipment that security needed. In addition, the management refused to install security cameras, to the chagrin of the police department.
Ultimately, the head of security bought whistles to get each other’s attention and possibly get back up when needed. There were 60 people in a massive brawl on the dance floor without any security inside to stop them.
One night when only two guards were on duty, a bartender came outside to tell them there was a fight inside the venue. There was very little that two guards could do. The police arrived later and refused to go inside. They told the guards to go inside and kick everyone out, which took about 45 minutes.
The guards were forced to drag people out, and there were a lot of injuries. Afterward, a disgruntled guest came back and stabbed another customer. After this fiasco, where multiple crimes were committed, the police went to the city council, and the city council revoked the venue’s license, which was the club’s end.
This thread brought you this post.
This article originally appeared on Financially Well Off.