Corporate Lay Offs and Downsizing

Common Sense Management Principles to Help Right-Size Your Organization

The numbers are staggering - 5,000 jobs lost here, 10,000 jobs lost there, recently over 60,000 in a single day. Chances are that your company or institution either needs to reduce head-count or has done so already.

This is not the first – nor will it be the last – time that organizations have gone through massive downsizings. Previous recessions in 1980-82, 1990-91 and 2001-2003 all led to periods of significant unemployment, as companies struggled to bring staffing costs in line with revenues.

One might think that lessons learned in those chal-lenging times would guide employment decisions today, but not all employers have bothered to me-morialize what worked in the past and what did not. As a result, the same mistakes sometimes get made over and over again.

In the words of consultants Matthew Guthridge, John McPherson and William Wolf, writing in The McKinsey Quarterly: “The way many companies conduct large-scale downsizing decreases efficien-cy, morale and motivation on the part of re-maining employees. It also increases voluntary turnover among high performers and compromises a company’s ability to attract strong talent in the future, as potential employees wonder how risky it is to take a job there.”

Other employers, however, take advantage of re-cessionary pressures to realign their organizations for future growth, prosperity and market share once times change for the better.

In this issue, we examine several principles that can help any employer make intelligent decisions.

Hire and Fire Strategically

Employers with strong performance-review sys-tems in place certainly should utilize them to make sure that documented under-performers are cleared out first. However, unless your organization is the size of a General Electric, be wary of arbitrary formulas that mandate equal reductions for each and every department or unit. In smaller groups – say, two departments of ten employees each – it would be foolish to assume the same percentage of top performers and bottom performers in both. The law of small num-bers is that there is no law.

In general, the two most defensible approaches to staff reductions are (1) to eliminate non-essential positions (regardless of the persons holding them); or (2) when the same position is held by many people, to eliminate those individuals who are least effective in it. Be able to articulate your policy to employees and, if later required, to a court of law.

Remember also that while firing can be done in an instant, hiring generally takes a little more time – in fact, sometimes a lot of time. Therefore, it usually makes little sense to dissolve those positions you will need to restore first, simply to meet some kind of percentage-reduction quota. If the incumbent holding the position is not fully competent, main-tain the position but fire the person.

Another factor in strategic employment is to look at the company not as it exists today – but as it needs to exist two, or three, or ten years from now. Mar-kets and technologies change. For example, the fields of commerce and journalism are both shifting inexorably to the Internet, requiring their purveyors to seek employees with new skills and marketing mind-sets. At the same time, there will be far less need in the future for other jobs. Clear the decks now of those employees with outdated skills, or help re-train individuals to acquire new skills. At the same time, with the assistance of a trusted search consultant, be on the lookout for individuals from other companies who have exactly those talents you will require in the future – and be prepared to make them an offer that’s hard to refuse.

Kill the Geese Not Who Lay the Golden Egg

As the dust settles from any staff reduction, ex-amine whether the resulting mix of talent and posi-tions offers opportunities to expand personal re-sponsibilities, create new positions, make broader use of cross-functional teams, etc. And while there may be less time to coddle the youngest stars of tomorrow (the “millennials”), let them know their work is valued and seek opportunities to build their interpersonal skills.

Likewise, tough economic times should not put an end to the training and development programs that give key employees at all levels a sense of importance – while broadening the skill sets and knowledge base that they will need for future assignments. Some of the best of these programs utilize key executives as opposed to professional trainers, which can be a cost-savings device as well.

Further, this is not the time to cease communicat-ing with key employees about your and their ex-pectations. In many cases, performance reviews provide a scheduled opportunity to do so.A recent article in The Wall Street Journal, titled “Get Rid of the Performance Review,” asserted that top-down reviews destroy morale and team-work by being political and subjective, with little opportunity for a subordinate to challenge the boss. That may well be the case, but, as the article’s author Samuel A. Culbert then suggested, there are alternatives – for example, re-creating the performance evaluation to give both boss and employee the opportunity to state how they will work more effectively in the future to achieve common goals. The point is, in a recessionary environment, no review at all may well leave em-ployees to fear the worst.

Utilize Outside Resources

NO COMPANY WOULD UNDERTAKE mass layoffs without engaging a skilled employment lawyer to help avoid dangerous legal shoals. Similarly, a professional search consultant can help navigate the waters of today’s employment marketplace.

For example, despite an employer’s best efforts to retain top talent in troubled times, key people may leave for what they perceive as greener pastures, or simply retire. In other cases, as the firm rethinks its strategic priorities going forward, the need for new types of employees may emerge. In still oth-ers, an under-performing department or division may be in need of a new broom. If it is impossible to find the right talent within, sooner or later the need will exist to look outside.

In some cases, highly competent people may have come into the marketplace for reasons beyond their control. Equally likely, the best person may be happily employed and well protected from the economic storm. The best search firms know where the best people are – and what it will take to hire them in terms of compensation, benefits and opportunity. Organizations hoping to emerge from the current recession in stronger position will use every possible resource to ensure this happens.

© 2009 SRA International, Inc. All rights reserved, including electronic reproduction or alteration.