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GOOD SMALL BUSINESS ACTIONLIST

Introducing a Downsizing Procedure
Getting Started
Downsizing. Redundancy. Layoffs. Reduction-in-force. All these termsall too familiar of latedeal with an unpleasant, though predictable, aspect of the normal business cycle. One always hopes that normal attritionretirement, career moves, and weeding out non-performing employeeswill avert massive layoffs, but there are plenty of examplesfrom poor individual business decisions all the way up to global recessionswhen organizations are faced with cutting back. This actionlist helps to understand the necessary and proper steps to take when faced with such a time. And while it highlights the best way to prepare for putting employees out of work, take heart that the company can do a lot to stall, or even prevent, layoffs in the first place.

FAQs
Does redundancy, or downsizing, automatically mean putting people out of work? Thankfully no, although thats regrettably where executives point the compass first. The place to start is on the cost cutting and organizational efficiency side. Only as a last resort should people be the costs that are cut free. And the reasons for saying so arent merely humanistic and touchy-feely; the fact is that downsizing has enormous impacts on both the morale of the remaining staff and on company productivity. The bunker mentality that sets in after a massive layoff is not conducive to innovation, nor allegiance. If it finally comes down to layoffs, what should be done to prevent employees from being totally surprised by the axe when it falls? There is a host of things, many of which are discussed further in this actionlist. But an essential first step is to set the stage carefully and methodically: communicate openly and often about the precarious financial situation and the reasons for it. Initiate programs to trim expenses and improve efficiencyand make employees central to suggesting and implementing the ways. When the day comes to announce the scheduled loss of certain jobs, employees have had months to prepareand the company has had time to build an adequate support mechanism to assist them. What should the role of HR be in such an event? Traditionally, human resource managers are the bearers of bad news without having had the opportunity to participate upstream from that event. The more enlightened companies now use HR managers as consultants, involving them in a range of studies, planning, and strategy implementation that includes the organization as a whole. In that way, the people in the organization are more likely to be seen as part of the solution rather than the problem.

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Making It Happen
Be Creative About Finding a Better Solution There are right and wrong ways to deal with redundancy, or downsizing. Dont think of it as a short-term, emergency fix. Rather, position it as a long-term strategy that provides grand opportunities for restructuring and a better way of doing business. Put together a steering committee to build a framework for the systematic rollout of the redundancy plan. Dont try to throw something together in panic; it will make matters worse. Involve Employees, Suppliers and Customers in the Solution If building a corporation depends on inside people and outside people, it stands to reason that any radical change to the corporation, including downsizing, would involve those same parties. Employees need to be involved in identifying ways to reduce costs and improve efficiencies. Likewise with vendors and customersall of whom have a stake in the outcome. If downsizing is a puzzle, then communication is one of its key pieces. Keeping a lid on information will only fuel the rumor mill and increase the likelihood for increased liabilities and legal problems. Let people know the plan for downsizing and the timeline for it, as well as a projected date for turning the corner to financial health once again. Look into the Future If management can fix its gaze on next year rather than next month, the prospects for survival are improved. Identify the new mission, core competences, and sales targets instead of counting heads. Look at how the organization must be structured and streamlined around new goals and objectives. During this time, the executive and management staff must adopt a positive outlook. They must be highly visible and upbeat in their communication about the role of downsizing in the overall restructure. While those losing their jobs move on, those employees remaining must be motivated to coalesce around the new vision, and it is the leadership that must instill that vision. Cost Containment Hopefully, the input from employees, the steering committee, vendors, customers and management will find general agreement to start cutting corporate fat long before cutting the workforce. Look at all areas of the business, not just the output. Here are some initial places to begin: restrict or eliminate overtime; implement a hiring and wage freeze; cut travel and entertainment expenses; reduce or eliminate recruitment activities; reduce benefits, introduce employee co-pay for insurance premiums; offer unpaid leave or implement a shortened work week; discontinue use of temporary and part-time workers and re-allocate their work; lay off non-producers and new hires still within their probationary period;

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allow job sharing and cross-training; shift affected staffers to vacant positions in other parts of the company; consider early retirement and golden parachute severance packages.

Dont forget to consider savings and efficiencies in other areas, too: put off capital expenses and equipment upgrades for another quarter or year; trim excessive meetings and unnecessary new programs; analyze work flow, response times, protocol, and procedure for excess fat; look at materials consumptionsupplies, paper, electricity. Implement small changes firstthe most easy to accommodate, with the least impact on personnel. This will have a positive impact on morale and will infuse employees with an attitude of cooperation. Review Employment Needs in a Restructured Organization Armed with a vision for a smaller and more efficiently organized company, develop a new organizational structure around a core of positions that are crucial for putting the vision into action. Review existing jobs and decide which are core and which redundant. Develop a system to reviewand a set of legally-justifiable criteria for selectingwhich current employees best fit the organizations future needs and what cross-training may be necessary to prepare the smaller group of employees to perform at even higher levels. Administer Layoffs Fairly When the time comes to reduce the number of employees, be meticulous about how it is done. If done badly, it can result in costly administrative and legal squabbles that will sap energy that is better spent on restructuring the organization. Be sure to research carefully the laws and regulations that deal with downsizing many class actions suits stem from ill-considered and ill-timed layoffs. Besides the laws dealing with discrimination, also review the Employment Retirement Income Security Act (ERISA, 1974) and the Worker Adjustment and Retirement Notification Act (WARN, 1988). Be sure to have a firm understanding of legal and tax implications before acting on your plan; involve outside resources if your own staff hasnt the background needed. Support Those Losing Their Jobs When announcing layoffs, give plenty of advance notice. Talk individually and privately with those affected, and alert each to their rights as an unemployed person. Also consider providing some benefits, especially for those who are not leaving voluntarilyfor example, some form of early retirement plan. You might also consider severance pay, extended benefits, counseling, and out-placement services (like rsum writing, networking skills, resource lists, and so on). What About the Survivors? These people need even more care and attention than those who are leaving. If the downsizing isnt handled fairly and humanely, the remaining members of staff will withhold their support and creative energy.

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Besides managing the rumor mill and promptly implementing education and cross training, managers must also consider a way to engage and reenergize employees especially the natural leaders and high producers. Consider developing a new system of job performance appraisals to coincide with an upgrade of the compensation plan. If a smaller number of employees is expected to pick up a heavier load and run evermore vigorously, they must understand that they will be rewarded accordingly.

Common Mistakes
Poorly-timed and Ill-conceived Downsizing Plans At best, downsizing in the wrong ways will mean youll lose the trust and affection of your remaining employees. At worst, those youve laid off can become litigants against you. In either case, the organization risks having wars on two fronts, and the chances for a successful restructure are severely diminished. Make sure that those to whom the responsibility falls for designing and implementing the downsizing effort are up to the taskthat they have the training, time, skills, appetite, and resources to do the job properly. Failure in this effort could leave the company in worse shape, in every way, afterwards. The keys to success are in the preparation, positioning, communication, and careful execution of a well-considered plan. The New Vision Is No Better than the Old Reducing the number of employees without looking at the rest of the organization only puts the old problems on the shoulders of fewer people. Downsizing must include a complete review of the organizations inefficiencies and redundancies. The effort must include a look at the systems by which products and services are produced. Every effort must be made to reinvent those systems to be smaller and smarter than before. The Downsizing Effort Is a Top-down Management Directive Without knowing why the company has started cutting benefits and jobs, employees will suspect the worst. Without involving a cross-level and cross-function team of employeesas well as customers and vendors who take part in helping to solve the companys problemsthe resulting plan will be lacking vital support. Without support, productivity will drop off, followed by profitability, company valuation, and investor confidence.

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For More Information

Books: DeMeuse, Kenneth, and Lee M. Mitchell (eds.). Resizing the Organization Managing Layoffs, Divestitures & Closings. New York: Wiley, 2002. Weiss, Donald H. Fair, Square and Legal: Safe Hiring, Managing and Firing Practices to Keep You and Your Company Out of Court. 3rd ed. New York: AMACOM, 1999. Web Sites: Hrnext: www.hrnext.com Jackson Lewislawfirm: www.jacksonlewis.com The Society for Industrial and Organizational Psychology: www.siop.org

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