Increase Your Competitive Advantage while Reducing Your Workforce
From BLR.com

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).