What to do before downsizing
Our chief executive officer (CEO) feels that we鈥檙e overstaffed. He has tasked the human resource (HR) department to do something. What are our available options given that our manpower complement is 30% less than the competition? 鈥 Saber Light
鈥婭t鈥檚 not easy to downsize an organization. It could be made difficult when you have a labor union that would object to whatever plan you may have, as they would consider such a plan a form of union busting. The CEO may have a good reason why he鈥檚 thinking of downsizing. But you need to clarify his objectives.聽
Hear it directly from the horse鈥檚 mouth. Find out more about his perceptions and thoughts. Ask for specific details. Then prepare a financial cost analysis for severance pay. Calculate a payback period for the restructuring costs with the help of the finance department.
The information required includes the estimated payroll savings, the target number of workers to be removed, their average salary, and length of service. Then, compare it with several optional packages of say, two months for every year of service and the average fringe benefit cost at 25% of salary.
鈥婭n many instances, downsizing can be justified by falling revenue, increased operating costs, or both. It鈥檚 not enough that we look at what the industry is telling us. Maybe, the competition has high levels of staffing because of the size of their operations or the number of products or services that they鈥檙e offering to customers.
鈥婳f course, we won鈥檛 know for sure unless we take a good look at operations. The labor laws allow employers to terminate workers due to automation, installation of labor-saving devices, or to avoid losses or further losses. The law even allows total closure of the business after major, irreversible losses.
鈥婭n that case, employees targeted for dismissal are always entitled to notice and severance pay, plus an outplacement program that could help them start a new life somewhere. The outplacement program includes training on entrepreneurship, and financial management, teaching them new skills, and career counseling which includes assistance in preparing professional-looking resumes and coaching on how to ace job interviews.聽
If possible, employers can recommend employees for hiring by the company鈥檚 affiliates, subcontractors, or suppliers.
Providing an outplacement service to employees sends an excellent signal to both the surviving and resigning employees that the company cares for them.
DUMBSIZING
鈥婭f an organization has not thought through its proposed downsizing program, it could result in what is known as 鈥渄umbsizing.鈥 The exercise could fail if the company ends up with low performers, the unskilled, and the inexperienced, forcing the company to pirate outsiders and offer them attractive pay and perks. If that happens, you鈥檒l be back to square one.
鈥婽hink hard before downsizing. Reducing headcount can destroy social equanimity when structures are altered, work relationships disrupted, work patterns and workflows modified. It will take time for the surviving workers to do the jobs once performed by many.
鈥婣 pervasive feeling of job insecurity could undermine the efficiency goals that were supposed to be achieved by downsizing. That鈥檚 why many organizations prefer to do positive downsizing through a voluntary redundancy program (VRP).
鈥婽his can succeed with an offer of a severance pay package that could range from one to three months per year of service. This is attractive to the relatively young, with long years of service, and higher pay resulting from their merit increases.
鈥婣 VRP causes less pain, is less emotional, and is less stressful for management, targeted employees, and survivors. To avoid paralyzing company operations, management must reserve its right to refuse the applications of high flyers, those considered to be indispensable, or those who possess unique skills that are difficult to replicate.
OTHER OPTIONS
鈥婽o help your CEO make an intelligent assessment of a planned downsizing program, you must suggest other pathways like the implementation of a kaizen program to help the organization identify and systematically reduce its operational costs.
鈥婼ometimes, mergers and consolidation are possible options, except that it takes the shareholders to do just that. It is not within the authority of the CEO to do that on his own, but he could make a strong recommendation to the board of directors.
鈥婣nother option is the centralization of backroom or support functions, like recruitment, and payroll, among other related functions, to end up with a so-called shared services setup. In other words, the solution may not necessarily limited to downsizing or rightsizing.
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