How executives botch layoffs
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Patrick Lencioni has a thoughtful piece in today's Wall Street Journal that's titled: "How Executives Botch Layoffs." Here's the money quote.
"while one would expect leaders to be more sophisticated than they were 30 years ago, I'm starting to hear familiar stories about executives who are making the same senseless mistakes that make layoffs more painful and costly than they need to be."
The article is definitely worth reading. But all of Lencioni's recommendations, while solid, are tactical. And there are a whole host of strategic errors that are getting made out there. Here are five of them.
Strategic Layoff Error One: Not looking for alternatives. There are alternatives to mass layoffs including voluntary pay cuts, reduced hours, job sharing, job shifting and more. Check them out before you move to layoffs.
Strategic Layoff Error Two: Making sacrifice something that top management requires of everyone else. That will come back to haunt you.
Strategic Layoff Error Three: Not allowing everyone to help find a solution. It seems to me that if I'm the guy in charge of a company that's in trouble, I ought to seek out a little help.
Strategic Layoff Error Four: Doing things, "across the board." That phrase tells others that you've given up thinking for the duration.
Strategic Layoff Error Five: Cutting from the bottom up instead of from the top down. The Germans have a saying that you "sweep the steps from the top down." It's relevant here. Besides, most companies can afford to lose the VP of Marketing more than a top salesperson.
In a whitewater economy like this one, layoffs may be necessary. But you don't have to be stupid about it.
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Some good points. It is important to do this with tact. Regarding error number one - if the work is not there, you must cut the workforce.
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We may have a disagreement here, Ray. I don't know because I don't know exactly what you mean when you say "cut the workforce."
If the work is not there, it's definitely important to cut costs. That doesn't mean, necessarily or first, that you need to lay people off. From my perspective that should be a last ditch solution to keep the business alive, not the first choice.
Thanks for adding to the discussion.
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Wally - We probably do disagree on certain aspects. I agree it is not the first choice. In a downturn, we must make difficult decisions. It is a time to reevaluate company strategy. People are an important part of that. In reality, people should run their business everyday like we are in an economic downturn. If that were true, we would not have to dramatically cut jobs.
Regarding my 'if no work, cut workforce' comment - If the demand for your service or product has reduced, limping along by not making the difficult decisions is bad business.
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Thanks for adding that, Ray. I think that a downturn is the universe telling you to do what you should have been doing all along in terms of running lean and productive. When the downturn comes you have to be clear about what's inefficiency and what's necessary to cut back temporarily.
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Wally, there are more ways to botch this job than there are ways to do it right. Fortunately, there are a number of tried and true ways to achieve the desired outcome that we tend to get wrong. Unfortunately what the article doesn't explore is "when do you know you've cut too deep." This will likely become the silent problem surfacing in organizations with harsh consequences. Productivity will drop - already happening. Employees become demoralized. Too many activities for too few resources. Customer satisfaction drops. Brand value erodes. And then, nobody gives a damn.
There is a lot at stake here, and unfortunately, most leaders don't understand the implications simply because they're too far removed from the problem or they don't have the relevant experience to make good decisions with the cards they've been dealt.
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Those are great points, Rodney. You're right that dropping productivity is a hidden profit-killer and you lay out the process well. Part of that, which Patrick Lencioni addresses, is the issue of dealing with survivors. I covered that in a post called "The Few, the Fatigued, the Forgotten."
You also make the excellent point that many leaders screw this up because they never get close enough to the front lines to understand what happens there. Thanks for your additions to the discussion.
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I have never had to make a layoff decision myself, so perhaps I am missing something important. From where I sit, it seems to me that layoff decisions have become more routine than examining the many, many alternatives.
I am not suggesting that there is never a reason to lay people off. What I AM suggesting is that it is management's job to look after the interests of all stakeholders (not just shareholders). I have never been at a place where there wasn't enough work to go around, only places where people were doing the same things as they were doing before the world changed.
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Thanks for those comments, George. I think you hit two important points.
Companies are pulling the layoff lever without examining whether there are other levers that might be more effective. I like to say that a leader has two jobs, accomplishing the mission and caring for the people. When you go right to layoffs without some hard thinking and looking at alternatives, you get the mission part (short term) but miss the people part.
I also like your mentioning of stakeholders. I've always thought we have to consider business decisions of all kinds within the ecosystem of relationships. The irony is that often reflexive layoffs don't serve even the shareholder's best interests.
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