Wise Managers Treat Layoffs as Last Resort

Despite all the trendy rhetoric about the importance of people, leadership, and values, far too many managers treat people in their organizations with about as much care and concern as so many numbers on a financial statement. They are just one more set of assets to be managed. These just happen to have skin wrapped around them. Phrases like "head count" dehumanize and objectify people. That's how we talked about cattle on the farm where I grew up. And that's exactly how too many managers view "their people."

This thinly disguised contempt most clearly shows up when managers jump into layoffs and downsizing as a first, rather than last step, when facing the need to cut costs. The airline industry provides a revealing study in contrasts – and leadership. Following the steep drop in air travel after September 11, more than 100,000 people in the industry were laid off in North America. But in keeping with their no-layoffs pledge, Dallas-based Southwest Airlines didn't downsize anyone. To help the company weather the tough times, employees, on their own, initiated a program they called "Pledge to LUV" (the company's stock symbol). They voluntarily gave up hours and days of paid time to help the company reduce costs and avoid layoffs.

Over the last decade numerous studies have shown that "dumbsizing" sometimes provides short-term relief – and protects shortsighted manager's bonuses – while hurting companies in the long-term:

• An American Management Association study in 1996 found that fewer than half of the firms that downsized subsequently increased their profits, and only a third reported higher productivity.

• The Wall Street Journal reported that downsizing companies outperform the Standard & Poor's 500 list only slightly during the six months following news of a restructuring, then lag badly, with their stock down 24 per cent by the end of three years.

• A Mercer Management Consulting study, tracking the performance of 800 companies between 1987 and 1992, found that of the 120 that cut costs during the last recession, only one in three achieved profitable revenue growth during the five years that followed.

As Don Cherry might say, it sure ain't rocket surgery. Downsizing hurts morale and productivity. Falling sales decline further, customer service slips, and quality drops. Absenteeism goes up and accidents increase as stress, insecurity, and resentment grows.

Since tenure rather than performance usually determines who goes and who stays, the worst supervisors and managers stay behind and add to the misery index. The high performers who weren't downsized jump ship and further weaken the organization. This growing leadership vacuum accelerates feelings of hopelessness.

Mass layoffs are always a very last, desperate step for organizations with strong leaders who truly care about people. At the center of this rare leadership are core values around partnership and participation. Organizational members aren't "heads," "warm bodies," or "human resources" to be acquired and disposed of like assets on a balance sheet.

High performing organizations manage things and lead people. That means working together when the financial heat is on to reduce costs through initiatives such as cross-the-board salary reductions, with the deepest percentage cuts going to senior management. (They made most of the decisions that created this problem.)

Other initiatives include reduced workweeks or hours or offering leaves of absences, either unpaid or at a fraction of salary. Voluntary sabbaticals can also save a company money, as do the reduction of executive perks.

Other efforts include:

• Redeploying people to revenue building positions

• Offering early retirement or voluntary separation packages

• Identifying and removing underperforming supervisors and managers, especially those with weak people leadership skills

• Work sharing

• Not replacing people who leave on their own or retire

• Redeploying or lending staff to clients or external partners

• Shared ownership or equity in exchange for salary reductions

• Involving people in identifying unnecessary costs, waste, and errors that could be reduced or eliminated

All of these approaches require courageous, visible, face-to-face leadership. Successfully leading in tough times calls for openness, clearly outlining the difficult situation, expressing your own pain, and providing cost reduction guidelines. Through surveys, meetings, e-mail polling, "town halls," and the like, managers facilitate brainstorming, get input, set priorities, and make joint decisions and action plans. Then communicate - you can't tell people too much about what's going on and why.

Sam Walton built Bentonville, Ark.-based Wal-Mart into the world's largest retailer through treating staff as respected partners. One of his legacies was to "treat them as partners and they will treat you as a partner and together you will all perform beyond your wildest expectations."

Forming respectful partnerships that let staff participate is not the cowardly acts of managers in closed meetings who hide behind press releases and get external consultants or the HR department to the dirty work of firing people. If this sounds like a lot of hard, agonizing work, it is. Managing can be tough, but leadership takes real courage. The research clearly shows you can pay the price now or pay a much bigger price later.


The Globe & Mail articles bio line:

Originally appeared in Jim's column in The Globe & Mail. Jim Clemmer is a bestselling author (his latest books are The Leader’s Digest and Growing the Distance) and internationally acclaimed keynote speaker, workshop/retreat leader, and management team developer on practical leadership. His extensive and resource rich web site (with over 300 free articles) is http://www.clemmer.net/articles

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