Despite the fusillade of attacks, Sally pressed her case.
"But I'm convinced we can innovate our way through this downturn," she said. "We've got the talent, the brains and the skills to create new products that will open up new markets for us. I feel strongly that if our people understand the sense of urgency, we give them a direction and let them go, they will create disruptive technologies that build new industry segments."
"Uh, excuse me, missus P-H-D, but as chief financial officer, I feel that it is my fiduciary duty to inform you that we just don't have time for that. Sure, I agree that putting some resources on new technologies is a good thing, but if this economy doesn't recover and we don't cut some serious cost out, unfortunately including people, within the next several months, you, missus C-E-O, are looking down the barrel of Chapter 11. Do you understand how grave our situation is? Our cash flow is so low, it's becoming difficult to make payroll each month!"
Unfortunately, discussions such as these may be all too frequent these days. When the economy gets tight and revenues begin to sag with no end in sight, downsizing is an option many corporations resort to. It doesn't have to be that way; in fact, downsizing may be detrimental to the long-term health of your business.
Two Paradigms
As this story outlines, corporate leaders tend to fall into two camps when hard times arrive: those who view employees as a cost of doing business and those who view employees as assets to grow their business or operate it more efficiently. The first paradigm is one of fear, scarcity and retrenchment, and the second is a paradigm of opportunity, abundance and moving forward. Both views are valid and are certainly desirable on your executive management team in order to get a wide diversity of ideas out on the table.
When rocky times hit, all options should be considered, with the downsizing alternative low on the list. In my research for this article, I examined nine studies contrasting the financial performance of companies who downsize with those who do not. None of these studies provided statistical evidence that downsizing leads to improved financial performance. In fact, most showed situations where downsizing led to poorer performance. This is compelling evidence that downsizing should be considered only when your corporate survival is immediately threatened.
Several of the studies compared organizations that restructured as part of the downsizing with those who only shed employees or assets as a cost reduction. In cases where restructuring took place, the chances of improved financial performance increased greatly.
Alternatives
Consider alternatives to downsizing such as:
• Reducing or eliminating bonuses
• Delaying pay increases and deferring promotions
• Unpaid vacations
If you can creatively engage your employees in alternatives, you might be able to turn a negative situation into a positive one. In times of conflict, loss of control has been shown to lead to reduced satisfaction. By involving your employees in the search for viable options, their perception of control increases and your scope of options increases, providing a win-win situation for everyone involved.
• Long term, consider the 3Rs:
• Redeployment
• Relocation
• Retraining
If you find that you must cut staff, consider starting with attrition, voluntary buy-outs, early retirement offers and eliminating contractors.
Consequences of downsizing
Many studies have shown that downsizing survivors, those still working in your organization, fare worse than those who have left. Survivors have more health problems, higher absenteeism and higher turnover. Coupled with severance packages, outplacement services, loss of institutional memory, low morale, survivor's risk aversion, reduced engagement and increased recruiting difficulty, these actions can have a profound impact on your long-term financial health.
Communication
Communication is key as you navigate through any downturn, no matter what action you take. Consider all communication channels from top to bottom, how frequently you communicate, and the messages that you convey. Be sure to impart the reasons for the downsizing, your goals and everyone's part in the new organization.
Workforce planning
Consider utilizing workforce planning to ensure that you will have an appropriate mix of skills available in the coming years. Workforce planning will give a structure to use your vision to drive goals that will assist you in determining the competencies, knowledge, skills and abilities required in the future, which will in turn drive your selection and training processes. In essence, an ongoing workforce planning effort will compel you to remain proactive rather than reactive.
Joel DiGirolamo heads the firm Turbocharged Leadership and has a BSEE, MBA, and a master's degree in psychology. You can contact Joel at joel@jdigirolamo.com.