Quick, Cut the Good People

Cover of the New Yorker Magazine
New Yorker – April 30, 2007

The current issue of the New Yorker has an interesting article this week entitled “It’s the Workforce, Stupid!”. The article highlights the short-sidedness of companies that layoff huge portions of their workforce in an effort to appease Wall Street and other critics.

Using the current examples of Citibank and Circuit City, the article takes the leadership of these companies to task for their recent layoffs. It points out that layoffs rarely have any real long term effect on the finances of the company. But, with CEO tenures running so short (around six years), it doesn’t matter because layoffs aren’t done for the long-term. They are done in hopes of a near-term stock lift to fatten the option-laden leadership team.

The article touches on the ham-handed way so many companies handle “downsizing”:

More recently, however, downsizing has become less a response to disaster than a default business strategy, part of an inexorable drive to cut costs. That’s why Circuit City can proclaim, “Our associates are our greatest assets,” and then lay off veteran salespeople because they earn fifty-one cents an hour too much.

This, to me, is the crux of the issue with downsizing. In my experience with layoffs, the problem is the effect they have on the team. There is no way to do a layoff for purely financial reasons that doesn’t play havoc with organizational morale.

There is no way to do a layoff for purely financial reasons that doesn’t play havoc with organizational morale.

The problem is, as I have said repeatedly, that you can’t treat people like automatons. Constantly repeating “people are our most important asset” doesn’t make them feel any more valuable. In fact, it often makes them believe you think of them like the other assets — cash in the bank or that drill press over there.

The catch is that people can think. They draw their own conclusions about what you think is the most important part of the business. And it’s just really hard to send a good signal to person A while kicking person B out the door. It’s one thing if B was a loser who deserved to go. But more often than not, B just lost the layoff lottery, and A thinks “there but for the grace of god, goes me.”

In my experience, as a member of a leadership team trying to cut staff, as a member of a team with people being cut around me, and as a consultant trying to help people do it right, there is almost no way to cut people without causing collateral damage. There are only two ways to cut people for financial reasons: 1) voluntarily, where you ask people to self-select, or b) involuntarily, where management chooses the losers. This is a lose-lose situation.

In the first case, where you ask for volunteers, it should be obvious that the first people to leave are those with the best prospects for other employment — the good people. What remains are the losers who either can’t or won’t find work elsewhere. Not really the kind of team you upon which you want to build a turnaround strategy.

Rats deserting a sinking ship is an apt visual.

In the latter case, even if you chose to jettison only the lesser performers, the remaining good people are scared about the potential next round of layoffs. Since they have the best alternative job prospects, they leave as fast as they can. Now you have little or no team left at all to effect the desired turnaround.

I’ve seen several examples of both cases up close and personal. Rats deserting a sinking ship is an apt visual. And every scenario ended up getting far worse before they ever got back to anything resembling normal.

There’s only one way I can imagine a downsizing working effectively. I say “imagine” because I’ve yet to see it be done this way. The leadership needs to be absolutely positive about the stable financial state they need to obtain. They need to calculate precisely how many people need to go, with complete confidence, so that they can do one, and only one, layoff. Repeated fits and starts toward the final workforce numbers are just the kind of thing that makes people panic.

There’s only one way I can imagine a downsizing working effectively.

Then the management team needs to be stunningly frank with the employees, admitting the problem in detail, and drawing out the precise path to success. Like any other project they need to have a very clear, concise, and credible vision for the future, and be able to sell that vision to everyone. It’s vital that this vision is believable by everyone, as they will be almost infinitely skeptical.

Then, they need to individually go to the people they want to keep and sell them on that vision. Each “keeper” needs to understand why they are a key part of that future vision for success. Management can’t just be reassuring, the case has to be personal and credible. Remember, these people are just short of panic, they will be skeptical. They need to truly believe, so that they won’t bolt for the door.

Finally, the layoff needs to be done quickly — like tearing off a band-aid. Downsizing rumors ripen with age, and not in a good way. The mean-time to implosion is days, a couple of weeks weeks at most. Having something out there for a month or two just gives the good people time to polish their résumé. So once, it’s clear this has to be done, do it promptly.

This is a path to success with downsizing. But as I said, I’ve never seen it executed this way. Perhaps you have. I’d love to know about your experience with downsizing. Add your comment to the discussion to tell me about your take on it.

HT to Nancy for the pointer to the story

One thought on “Quick, Cut the Good People

  1. Nancy Williams

    We saw the rats leaving the sinking ship in the case of Owens-Corning. The problems facing the company were long standing and caused by a dogs-breakfast of accumulated problems. First was a hostile take-over attempt in the ’90’s that forced the board to dump costly divisions that had promise for the future, but were unaffordable under the then circumstances. Good staff had to go. Then the ballooning asbestos lawsuits overran any predictions and depreciation meant to cover the defense. Finally, bad management decisions, a misguided buyout of another company with its own asbestos problems, fueled the rumors and the exodus began, slowly building until it became obvious that bankruptcy loomed. Intelligent and experienced high and middle level managers got their resumes in shape and said goodbye. Then came the actual court ordered bankruptcy and the downsizing was unavoidable. The shell of a company struggled through the next four or so years, finally emerging from bankruptcy just late last year. Job One now is rehabilitating morale in what’s left and that appears to be happening – the stock is up.

    So there are circumstances – Ford and GM are other examples – when layoffs aren’t a choice. How they are accomplished is well addressed in your posting.

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