Right-sizing is so hard

In 35 years of business I have been through several up and down cycles and I have seen plenty of hiring and firing. Down-sizing is usually not a pretty sight, so it set me to thinking about the process, have we got better at it or are we still struggling?

One of the biggest shocks I had was when I was CIO at an industrial conglomerate that went into receivership and consequently we left close to 1,000 employees without certainty on their future. Being part of the management team that led us to that position gives you a sense of responsibility and a sense of failure that is hard to shake. The fact that some long-term employees had their housing provided on the factory premises and they consequently lost not just their jobs but their homes was a huge blow to them and I certainly felt their disappointment at their corporate management and the failure of that function.

I was also at Oracle when our growth rate dropped from 100% year-on-year to 70%. Many companies would be extremely envious of such positive growth. However, our hiring plan for the year was aligned to 100% growth so we had to rapidly adjust to the lower growth and that meant redundancies. Management made the decision immediately but it caused a significant disruption. Making people redundant when the compant is clearly growing is a decision that is hard to justify to people. In this particular case I was one of the employees targetted for right-sizing … somehow I survived but I saw several colleagues forced out at the time.

Principle 1 of Right-Sizing: do it for the people not the business metrics

Companies and their leaders often make statements like “people are our greatest asset” and yet they appear as a liability on most company balance sheets. Additionally the negative effect of salaries on the P&L statement governs company decisions on headcount.

A few years ago I worked within a business unit where it was immediately clear to me that the current P&L only supported roughly 250 of the 550 employees in that business unit. My first question was “so what do we do with the other 300?” Full credit to my boss at the time who desperately sought other avenues to fund his business. Sadly he was not in control of the income line on the P&L and the result was a slow water torture down-sizing.

This set me thinking … here was a business unit that had invested heavily to build a strong team yet circumstances (meaning business metrics) now conspired to force a decision that no leader wanted. Was there a better way to make the downsizing decision, were there alternatives, was delaying the decision the right thing to do or was it simply delaying the inevitable?

Well, the right thing to do in my mind is to stick to first principles. If you say people are your greatest asset then you had better mean it … and find a way to get them on the balance sheet as an asset not a liability!

Principle 2: Re-train, re-deploy and re-hire

In the example above I am still in contact with a number of ex-colleagues that have ended up either working for competitors or working for companies that inherited the work that we lost as we down-sized.

Back in the 90’s I read a book called Maverick by Ricardo Semler and many of the tactics that he used  have stayed with me. One of them concerned the employees who left his company, Semco, and how many of them founded companies that were associated with Semco in some way (as suppliers, as customers). It set me thinking about the concept of a company as a diaspora and how, even in a down-sizing, there could be ways to re-deploy employees to other companies that we collaborate with and, hence, they would in some way stay associated with a company that, hopefully, treated them fairly.

Of course, when business is down some people will just up and leave. No hanging around to see if there is a recovery. However, if you are pro-active in helping people to find their way in life and you have already built a strong culture within the company, then the idea of working in a related company or remaining associated with the industry is often an attractive way forward for employees.

Principle 3: Always Under-Hire

Business is often un-predictable and goes in boom-bust cycles (just look at any stock market index) but if the number of people we employ follow the same curve we are creating massive uncertainty for them. The job of a company leader or CEO is to separate the people from the boom-bust cycle in an effective way.

One of the techniques I learnt early on was the principle of under-hiring.

As a young manager I was keen to grow my team and, in one of my first jobs, the decision on hiring was made very simple for me. If you have paid, profitable work then go out and hire another consultant to do the work, period. It created in me a sense of power, no interference from senior management, no HR policies to follow, just go and do it! What could be more empowering.

Unfortunately it has a downside.

No work, no people. That large project you hired 50 people for just finished and you have no work for them anymore, so get rid of them!

It is always hard when people are over-worked to refuse to hire additional help but sometimes a decision not to hire can save you an embarassing conversation 6 months later. As someone once said to me about hiring, “beware the false positive”.

Principle 4: Be Clear on the People Implications of Strategic Decisions

I am sorely tempted to go as far as recommending that strategy should be a people-first process!

Over the years, the people I have worked with have never failed to amaze me with their ability to adapt. So, if we consider that in a VUCA world (volatile uncertain complex and ambiguous) the trend for strategy is to become more adaptive and to exchange long planning cycles for shorter-term initiatives aligned to overall direction, then the importance of aligning people to dynamic and adaptive strategy becomes critical.

Recently I was involved to a complex and far-reaching change process that a global organisation was undertaking. This involved the acquisition of new skills and attitudes. Rather than investing in re-training existing staff and helping them adapt there was a considerable focus on hiring new talent. Now I was part of the decision process that resulted in new hires outside of our existing talent pool and I would defend this decision. However, I was saddened by the lack of focus on changes to existing internal processes, mindsets and ways of working. It was almost as if we expected the new hires to succeed despite the current organisation!

In fact quite a few of the new hires failed. I believe that one of the reasons they failed was that they expected the organisation to support them. The rest of the organisation was complacent and complicit in their failure.

It sounds trivial to say this but I remain convinced (through the experiences I have had with change resistance from individuals) that if you fail to address the cultural and people implications of any significant right-sizing initiative then you put the whole initiative at risk.


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