Cost reduction is defined as the achievement of real and permanent reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for use intended. Cost reduction must be real and increase productivity. It must be permanent and should not impair the suitability of products or services for the intended use.
The scope of cost reduction is wide and it could be applied to wherever cost is incurred. In many organizations the cost of human resources is very high. The top management should find ways by which the cost of human resources is reasonably reduced. Any abnormal reduction of cost in this regard may lead to unfavorable organizational climate.
In autocratic type of organizational climate the human resources cost will be reduced since the employer is not so particular about keeping the morale of the employees high and to motivate them for higher productivity. Since better performance is ensured through fear, threat, punishment and occasional rewards, there is no need for spending on welfare cost. In custodial model, over and above their normal salary and wages the workers look out for welfare measures for which the management has to spend additional amount. So cost reduction is not fully possible here. In supportive model of organizational behavior, the management extends leadership and support to the employees for job performance. Here the employees’ needs are met in High Order. So it may lead to increased cost. But their future performance may be high which may lead to increased productivity and ultimately lead to cost reductions.
The human resources cost will increase when custodial and supportive model of organizational systems are in vogue. The consequent result will be increased work performance and productivity. When productivity increases it will reduce ultimate cost of production. In toto, the concepts of increased cost and cost reduction are changing frequently in regard to the cost incurred on human resources. The future performance of the human resources depends upon the organizational climate. In autocratic model, of course, the employer can reduce cost by suppressing the human resources. But such cost reduction is a temporary one. The workers, who are dissatisfied with work, wait for the apt time to quit the job which may lead to labour turnover and subsequent increase in cost due to new recruitment and less productivity. Even workers, who continue, may not perform up to expectations. In concluding remarks, the human resources, could be stated as a variable factor which causes both increase in cost and cost reduction which are the factors dominantly affecting the future performance of the human resource structure of the organization.