Backing Up to Go Forward
(A Moravec and Associates published article)
Driving toward the office complex, a CEO notices the sun shining on a nearby lake, but her mood is dark. This morning's meeting is going to deal with a subject she had hoped to avoid. Layoffs have stepped from the day's local and international headlines onto her doorstep. The CEO sighs, anticipating many painful decisions and upheavals. She is tempted to turn the matter over to Human Resources so she and management can go back to focusing on the business of business. But it is her responsibility.
No country, industry or business is immune from layoffs!
Since rightsizing or the current euphemism for layoffs can be a good way to free up capital and decrease unit-labor costs, there is no case to abandon it. This is not to say that it is always effective. As study after study has shown, layoffs frequently fail to produce the results that management was seeking. The organization may become leaner, and sometimes even meaner, but so does a junkyard dog in winter.
To nearly everyone, layoff is a constant fixture of the 21st century. For the past several months, companies around the world, including "job for life" countries like Japan, Korea, Sweden, France, Germany, Indonesia and Italy have been slashing jobs each business day. (Lucent 100,000, Deutsch Telecom AC 55,000, Fiat SpA 11,600, Procter and Gamble Co. 10.600, AT&T 5,000, Sony 4,500, Abbott Laboratories 3,500, General Electric jet engine 2,800 jobs).
Restructuring and resizing for fit with the economy is strategic management objective. When a reduction in force is inadequately planned and ineffectively executed, the enterprise loses on many fronts: productivity, competitiveness, customer satisfaction, employee motivation.
Still, organizations have not yet learned how to downsize without creating a greater crisis tomorrow than the one that's making them restructure today. But there are 10 common errors that companies can avoid.
1. Failure to set clear vision and outcomes. Before slashing headcount personnel costs, ask:
- What do customers expect from us, and how will restructuring affect our ability to achieve customer delight and near term results?
- What are the underlying reasons for reducing staff size: leanness, new strategy, discontinued lines of business, cash requirements or required new mix of competencies?
2. Ignore alternatives to adjusting workforce. Consider the best way for the organization to achieve its goals. There are dozens of options to downsizing, including:
Stage 1:
- Defer budgeted hires
- Defer budgeted activities
- Heighten day-to-day reduction or postponements of costs
- Respond quickly to signs of further deteriorating economic conditions
- Extend the number of long weekends
- Seek discounts from suppliers
- Reduce inventories, work in process
- Consolidate
- Lay off contract employees
- Outsource non-core functions
Stage 2:
- Revise forecasts and expenditures
- Cut costs, improve productivity
- Cut overtime
- Discontinue discretionary spending
- Redeploy employees
- Accelerate new product or service introductions
- Launch cross-functional teams to implement cost cuts
- Sale obsolete inventory
- Reduce business travel expenses
- Discontinue operations on day before each weekend
- Encourage use of banked vacation days
- Partner with others to develop new products/services
- Negotiate for reductions in supplier costs
Stage 3:
- Request voluntary early retirements
- Make hiring/replacements the exception
- Make deeper and broader cuts to administrative costs
- Monitor stage 2 for results: take decisive actions
- Defer lower-priority capital expenditures
- Launch more aggressive revenue-generating strategy
- Discount prices on specific products and services
- Accelerate new product launches and discontinue others
- Extend terms for new businesses
- Increase prices where quality and product performance characteristics provide unique competitive advantage for customers
- Accelerate capital work with less than one year payback
- Defer raises
- Identify and lay off bottom 10-15% performers across the board
- Cuts in pay for highly compensated people
- Reduce hours of operation except to customers
- Eliminate "sacred cow" products and services
- Shut down for the week around civic and national holidays
Stage 4:
- Salary deferments or reductions for balance of exempt employees
- Early retirement packages
- Voluntary resignation offers
- Layoffs based on competencies required to go forward
3. Managing the transition poorly. Restructuring is fraught with complexity and corporate-wide ramifications. It is a transition to be managed like any other - with planning, insight, teamwork, compassion, innovation, and skill. Learn from the best.
4. Inept handling of emotional factors. A turbulent emotional climate is inevitable. Guilt, anger, fear, frustration and denial will surface. Un-kept promises explode. People need to vent their emotions without repercussions. Managers need to acquire and practice new capacities of empathy.
5. Inadequate downsizing skills. Supervisors need procedures to handle the task of dispensing layoff notices and managing the consequent conversations.
- Prepare scripts and most often asked employee questions and answers for supervisors. Brief supervisors on their responsibilities. Reassure important customers and suppliers and the financial community.
- Where possible, notifications should all be distributed during the afternoon of the last day in a work week. Place first aid and security on alert. Provide, at company expense, taxis for those requiring special attention.
- Hold a workshop on resume preparation and job search strategy the first day of the next workweek at an offsite location. Staff the work shop with creditable resources. Provide self-help "take-aways". Inform workshop participants of all community resources
- Expect morale and productivity to decrease: it is normal.
6. Ignoring effects on other stakeholders. In a rightsizing it's important to consider the effects on all stakeholders--customers, vendors, the community, and employees--and determine the strategy to manage these interfaces. No stakeholder should rely on rumors and half-truths.
7. Failure to provide for "survivors". Survivors of the cutback will use the event to judge adherence to expressed organization values: "'walk the talk".
- Use the weekend to remove unnecessary furniture, work stations, automatic forward of email and telephones.
- On the first day of the next workweek all offices and work-areas are to be reorganized to best fit local situations. Excesses are to be removed by close of business on the first day.
- On the second day of the week each work group is to meet and prepare their forward strategy. Focus is:
- what do we wish to achieve -- vision and
- what do we do short term -this week - to begin the journey
- what do we use as measurements for results
- Management and supervisors are expected to systematically "walk around" and listen and engage employees.
- Supervisors have a one-on-one conversation with each employee by the end of the week.
- Managers meet to identify common themes and responses.
8. Failure to lead the strategic workforce forward. The workforce is the talent that will take the business forward.
- Top management must create the hope for the future by disclosing its vision and the mission of the organization.
- The reconfigured workforce will include survivors and may include transfers and new hires. New teams need to be built around the new goals and forward looking tactics.
- The strategic workforce should begin traction forward by letting go of unnecessary "baggage" and practices.
- Work groups discuss the baggage that is to be left behind.
- Nothing goes forward if you don't let go of the past: the past, however, is to be honored.
- Engaging employees with forward-looking programs should begin within 72 hours of a termination; you can reengineer the work later.
9. Failure to identify "lessons learned". Since resizing is bound to be repeated, it is crucial to look at processes as well as results.
- Were goals met? Why not?
- What aspects of downsizing produced favorable or unfavorable results?
- How are we to do better next time?
10. Failure to integrate revitalization into layoffs. After a downsizing, the temptation is to resist further change.
- However, this is the ideal time to reshape the business and organization and introduce initiatives to the future.
- The leaner structure is more agile, and employees are motivated to help secure a future rather than having it thrust upon them.
A winning company:
- Honors and lets go of the past,
- Is guided by possible futures,
- Clearly perceives internal and external reality,
- Makes decisions for strategic results.
The crisis of resizing is an integral part of revitalization and reveals the challenges and new opportunities to go forward.
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