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A reduction-in-force (RIF) is one area
in which companies commonly make a bad situation worse.
In fact, effectively conducting RIFs is an area for
which a significant "knowing-doing gap" exists.
In other words, there is an abundance of available information
to help us effectively conduct an RIF, but many companies
do not apply this information to their practices. Applying
the following tips can help you make the right choices
in the face of the hard decision to reduce your workforce.
Nearly half of all companies who conduct
RIFs experience reductions in productivity—which
makes matters even worse for the company. In addition,
companies experience less obvious yet equally debilitating
effects of an RIF. In fact, the combined results of
surveys conducted by several worldwide outplacement
firms in 2001 show the following:
• 86 percent experienced lower employee morale.
• 78 percent saw eroded trust in management.
• 35 percent observed less effective teamwork.
• 55 percent perceived a reduced ability for their
employees to manage stress.
William’s Law states that a system’s
response to a request for change is best predicted by
knowing the outcome of the last change. Therefore, it
makes good business sense to take the time to plan for
tough changes such as an RIF. You will reap the benefit
of greater acceptance to subsequent changes you will
require of your organization.
We will break down the process of making
the best of a bad situation into three phases: before,
during, and after the RIF. We will go into more detail
for the "before" phase because, as with any
project, if an RIF is well planned, implementation tends
to go more smoothly.
Before the Reduction
The key to this phase is self-knowledge. Gain a better
understanding of your business by conducting a simple
80/20 analysis of the profitability of your different
products, services, geographies, market segments, etc.
This analysis will reveal the 20 percent of your business
that accounts for 80 percent of the results. If the
80/20 rule holds true in your company, this means that
the most profitable one-fifth of your company (sales
force, products, regions, or whatever slice you want
to take) is 16 times more profitable than the remaining
fourth-fifths. Make sure that this less-profitable 80
percent is meeting a business need, or eliminate it.
Unless the lowest-performing parts of your business
are strategic, cut your losses.
Do you have other options besides an RIF?
Next, identify your company’s top five expense
drivers. Then, reduce expenses first in areas that do
not compromise your long-term plans (possibly travel,
contractors, express mail, overtime). Be cautious about
eliminating company rituals at the core of your culture.
Consider a "share the pain" approach to expense
reduction (e.g., across-the-board salary cuts, unpaid
days off, 4.5-day work weeks, increased employee cost
sharing for benefits).
Charles Schwab, Inc., took a "share the pain"
approach. It cut executive salaries and bonuses, tightened
discretionary spending, and asked employees without
direct customer contact to take three unpaid Fridays
off during the next three months. Although Charles Schwab
ultimately had to cut 5,000 jobs, the company sent a
strong, positive message to employees and the market
about what it values and how it operates. More important,
Schwab had harnessed all the company’s intellectual
capital to help sustain its competitive advantage.
Another good example of reducing expenses
before reducing headcount is found at Southwest Airlines.
While most of the airline industry reacted to the economic
downturn with swift, deep job cuts, Southwest looked
at more creative ways to reduce its expenses. The company
created a win-win financing arrangement with Boeing
to defer delivery of planes (which it was contractually
obligated to purchase) while still enabling Boeing to
book the sales. This move freed up cash until things
turned around. To date, Southwest has not eliminated
any jobs and continues to capture market share. Both
Schwab and Southwest put substance behind the often
hollow motto, "Our employees are our most valuable
resource."
If you have no choice but to cut back
… The realities of your business may require you
to reduce headcount. If so, make sure you do the right
thing—from legal, employee relations, and market
perception standpoints. Resist the convenience of an
across-the-board cut and use this opportunity to get
rid of your "C" and "D" performers.
If you must reduce your headcount, apply
a structured process to ensure you keep your best employees
(in terms of performance and attitude). This will help
you avoid discriminatory decisions. Prepare your managers
with scripts and a clear process to follow on the announcement
day. Arrange for severance, outplacement, and community
resources for the affected employees (state unemployment
agencies, local libraries, industry networking/support
groups). The more support you can afford to offer, the
better you're protecting your company’s reputation
as a preferred place to work. Don’t forget to
prepare release letters for employees depending on the
type of consideration they are given. Self-knowledge
also applies to the people side of your business. Be
aware of the perceptions of your employees. The best
way to control this (and avoid creating an "organizational
blind spot") is to communicate honestly about your
plans and challenges. If you are dishonest with your
employees regarding your plans and challenges, your
employees will know it. Executives who underestimate
their employees’ intelligence typically overestimate
their own.
During the Reduction
The keys to this phase are consistency and speed—consistency
in your decision-making and communication, and the speed
of orchestrating the RIF. Make the announcement mid-week.
This gives affected employees access to outside services.
At the same time, the weekend is in sight, which allows
surviving employees to process the reduction and refocus
by Monday.
Prepare packets for affected employees
that contain necessary checklists, information, contacts,
and resources to facilitate a smooth transition.
Communicate individually with each affected
employee. Share the same reason for the RIF with each
exiting employee (e.g., cost control, reorganization,
realignment). Remember, whichever term you use, it all
means the same thing to the affected employee. Balance
respect for the exiting employees with the security
needs of your company (e.g., computer and building access,
company property, credit cards, and cell phones). Where
you find this balance depends on your type of business
and your underlying assumptions about your employees.
After the Reduction
Continue your communication with employees. This time
do more listening than talking. Be honest with yourself
and your employees about the prospects for future changes.
Conduct more frequent meetings than usual during the
month after the RIF. Provide opportunities for survivors
to express their concerns. At the risk of sounding too
psychological, we continue to witness illustrations
of the saying, "Unexpressed emotions don’t
go away, they just rear their heads in uglier ways."
Refocus survivors on new performance goals
and roles. Be explicit about how the company will support
the achievement of these new goals. Simply saying, "We
are going to raise the bar" without explaining
the why, when, and how will only build employee resentment.
Enlist your employees in solving the problem (getting
your company back on track). Remember, the RIF only
addressed the expense side of your business. You should
have kept your company’s best minds and attitudes
to grow your revenues, so make sure that you use them!
Lee J. Colan is president of The L
Group, Inc., a Dallas-based consulting firm (http://www.theLgroup.com).
He is also the author of Sticking to It: The Art
of Adherence, a practical book to help leaders consistently
execute their plans.
©2003 TABIC.
All rights reserved.
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