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During tough economic times a reduction in force (RIF)
often becomes a necessity for many companies. Let’s
face it; payroll expense is probably the biggest
expense for the majority of companies in business
today. Unfortunately, many leaders have a tendency
to panic and make across the board cuts without
regard for the long term effects, employee moral and
the overall health of the company and its ability to
weather the economic storm.
Gutless Management
I have stated in many of my articles that economic
turbulence can create a window of opportunity to
gain market share. At the very least it offers you
the opportunity to fix and repair many issues that
should have been addressed months or years ago but
due to the fact that profit was easy to come by,
many of these issues were ignored, overlooked or
just swept under the rug. This is especially true if
these issues had a direct impact on employee
relationships.
In other words, profit covers many sins. Some of
those sins can be directly attributed to gutless
management. I have to qualify that statement by
stating in equivocally that I am a firm believer in
servant style leadership. As leaders we need to
serve our employees. However, servant style
leadership does not mean that we accept
incompetence, below average performance or comfort
zone apathy.
I would doubt that there are many companies out
there that don’t have at least one or two employee
issues that have been overlooked or ignored in the
past for a myriad of reasons. Let me tell you a
secret, the majority of your good employees know
long before you do which employees are carrying
their weight and are worth keeping. How many times
have you struggled with an employee problem only to
finally let them go and your employees said ----
“it’s about time”.
So you are now faced with a necessary RIF due to
economic crisis. It would be a big mistake to make
arbitrary across the board cuts. Now is the time to
make an across the board evaluation of every one of
your employees. Start by looking at the function
contribution with respect to your revenue stream;
next look at the individual’s contribution with
respect to top line sales, profitability and their
individual performance based on expectations.
(Assuming you haven’t set precedent with
exceptionally low expectations).
Take the Surgical “Pruning Approach” Strategy
No garden can flourish if it is full of weeds. Now
is the time to get rid of the weeds first.
Compassion is a wonderful thing and is often
referred to as strength. However, in turbulent
economic times, too much compassion can be a life
threatening weakness. Keeping “old Joe” around
simply because he has been with you for fifteen
years isn’t a good enough reason if “old Joe” hasn’t
been cutting it for the past five years. Keeping
Sally on the payroll because she is your wife’s
cousin even though she just figured out how to use
the copy machine after five years will do
irreparable harm to your organization during tough
economic times.
A surgical pruning strategy only begins with the
precision pruning of the workforce. To strengthen
the company during tough time’s means you must
invest in employee development and upgrades while
you are surgically making precision cuts in the
workforce. You may terminate three low performing or
non performing employees and replace two of them
with higher quality, higher performing candidates.
Sales personnel offer an excellent example of the
opportunity for workforce upgrades that position you
to gain market share during tough economic times.
That doesn’t mean you go out and hire the sales
people your competition has just terminated. That
would risk hiring from a pool that may contain the
cream of the crud. But, that super star sales person
that works for the competition that you would love
to have on your team may now be very interested in
talking to you after seeing some of his coworkers
let go.
The surgical approach is simple. Recognize the
necessity of trimming costs but at the same time
recognize the opportunity to invest in upgrading
your workforce and investing in customer development
and employee training. Don’t cut training.
Now is the time to invest more into training as it
can create or maintain competitive advantage.
Even a Surgical Staffing Strategy Requires a Plan
A reduction in force of any size is not pleasant
regardless of the economic challenge being
sensationalized by the media. You are messing with
people’s lives; families are involved. You have a
moral obligation to make sure that your actions are
honest, ethical and above board. Yes, some people
may suffer but if you are in a position that
requires the sacrifice of some to save the jobs and
livelihood of many then you have little choice.
However, your decisions must be based on some basic
premises. The following tips can support your
decision making process.
Make sure employees have had fair and consistent
performance reviews. Determine with factual examples
which employees are your top performers and which
employees are below average performers. Review and
analyze contributions to success. This will support
your surgical pruning strategy when it comes to a
reduction in force.
Don't cut back on skills training and management
development. It’s easy to cut training but in
reality it should be the last thing you look at.
That doesn’t mean you can’t be a little more cost
conscious about it. But don’t eliminate training in
its entirety.
Look at compensation. You may have to take some
executive pay cuts but at the same time, consider a
base pay increase for those employees rated as top
performers that create a direct contribution to
profitability. This may be especially true for your
sales people.
Communicate --- the worst thing you can do is keep
employees in the dark. Over communicate. Be honest
and open with employees. They are not stupid. Tell
them the truth and update them often. If you don’t
communicate regularly, employees will make stuff up
in their own minds and what they envision is
generally much worse than reality.
RIF – How Big – How Many?
Before you begin surgically pruning the workforce,
you should create a surgical team that can analyze
current and future staffing requirements. This is a
basic part of your contingency planning process.
Contingency planning is essential to recovery from
economic crisis. Your team should consider turnover
rates to determine how many positions are likely to
become vacant through attrition. Layoffs must be
looked at with respect to permanency or short term
horizons. Redeployment of personnel is a factor for
consideration as well as cross training employees in
other functional areas.
Of course when dealing with any employee issue your
human resource department must make sure that you
are not in violation of any existing State or
Federal laws. If you don’t have a Human Resource
(HR) department, you should hire an HR consultant to
support you during the process. Consider the
following:
Which jobs or functions will be eliminated entirely?
What contractual recalls may be necessary based on
any contractual obligations?
What are the severance costs and consequences?
Who will be involved in RIF selection and what will
be the parameters?
Should there be a D-Day to announce the RIF all at
once or should the RIF be done over a two to three
month period? (Note: one swift move is preferred as
having the least impact to overall employee moral.
Staggered cuts leave the employees wondering – who’s
next)
What about timing? Some states may have specific
notification statutes for large RIF. The WARN
(Worker Adjustment Retraining & Notification) act
may apply
What about the market impact. Your competition may
use it against you. Make sure your team develops a
communication strategy for both the internal and
external environment. Will the company offer
outplacement assistance?
If you are shutting down a branch, who and how will
you oversee the closing? Should you offer a stay
bonus for selected employees until the division is
closed?
What about waivers and agreements not to sue if you
are offering a severance package for select
employees. (Check with your attorney)
Times are tough—but so are you. If your mindset is
simply the desire to just survive this economic
cycle and you are hoping you can outlast the storm,
you are actually planning for failure. Your mindset
will become the mindset of your team. You are the
leader. Your thoughts are powerful. They will show
through any kind of front you may display. Times are
tough but the sky isn’t falling. So start thinking
and acting in such a way that you can gain market
share in any economic climate. Take advantage of the
window of opportunity. You want to thrive not just
survive.
Dr. Rick Johnson is the Founder of CEO Strategist,
an expert speaker in wholesale distribution
consulting and strategist leadership. He has over 35
years of experience in distribution sales and
operations. The first ten years of his distribution
career were spent with the largest steel- processing
distributor in the world. During the second ten
years he started his own distribution center. In the
first year, sales reached $1 million dollars and had
grown to $25 million in its tenth year. The third
ten years of his career dealing with financially
troubled Turn-A-Round companies. After completing
ten years of TAR work, he decided a decade of acting
like Darth Vader was enough and became a consultant
to the Wholesale Distribution Industry. Rick is
frequently published in numerous magazines including
a column in Supply House Times, with over 250
different articles published to date. He’s also a
published author with eight books to his credit For
article feedback, contact Dr. Rick Johnson at
rick@ceostrategist.com
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