Four Mistakes Leaders Make When

Downsizing
Avoid these management traps, and maybe your company
can emerge from the recession in stronger shape
By Keith McFarland

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Back in June, I still believed our economy could finesse a soft landing, (BusinessWeek.com,
6/27/08) but it turns out I underestimated our ingenuity for screwing things up. A perfect storm
of dumb borrowing and easy lending, runaway derivatives and credit default swaps markets, and
wooden-headed congressional and regulatory oversight is bringing the world's most productive
economy down hard. Buckle up, it is likely be a bumpy ride.

If you're in a market segment that won't be hit too hard, you're lucky. If not, though, recessionary
pressure need not spell disaster. If your company has been prudent in its use of leverage, you
might even pick up a few points of market share as your competitors batten down the hatches.
Just be careful to avoid the following four common mistakes leaders make when scaling back.

1. They kid themselves. No one likes to lay people off or close facilities. Faced with such nasty
tasks, leaders tend initially to kid themselves in underestimating the scope of a downturn—and
as a result, they find themselves chasing a falling revenue curve and risking death by 1,000 cuts.

Don't fall into this trap. Instead, get your core team together and take a brutally honest look at
how bad things are likely to get for your business. Then size your business to make a profit at the
level of revenue you think is most likely. Don't bet that the sales department is going to pull a
rabbit out of its hat, or that some new product you are about to launch is going to solve all of
your problems.

2. They make across-the-board cuts. A common approach in a downturn is to declare reactive,

across-the-board reductions—which usually just make things worse. Tough times require leaders
to think deeply about their business models and focus cuts in such a way that they can protect or
even extend the core.

It should become clear that many projects, initiatives, and even departments hatched during good
times are not at the core of your business. Indeed, it is vital that a company know exactly how
much money it makes by customer group and by product. Roll up your sleeves and make a clear-
eyed analysis of your company's position. Identify the 20% of the activities that produce 80% of
the results—and protect them at all costs.

3. They fail to demonstrate generosity and concern. One reason some leaders perform poorly
in a downsizing is that the process is painful for them. Many feel the situation may be their fault,
and they attempt to minimize bad feelings by avoiding contact with those losing their jobs.
Doing so makes them appear miserly with their time or their pocketbooks.

Show courage and commitment—meet with people you have to lay off, help them transition,
commit to show a generosity of spirit. Survivors in the organization will be watching you
closely, and they will judge your character based on the empathy you show to those who are
losing their jobs. If they see even a hint of dispassion, they are likely to lose faith in you and
begin to look for another job.

4. They clam up. For good reasons, communication with the troops about impending expense
cuts is usually carefully and tightly controlled. But people get antsy when they know their job or
department might be on the chopping block, and it's important that leaders send a clear signals on
how serious the financial challenges are likely to be and exactly how the company will respond.

As soon as you determine a course of action, communicate fully and often to the troops
(BusinessWeek.com, 10/21/08). Send the signal that you fully grasp the seriousness of the
situation, but that you also have a plan for helping the company survive and even flourish.

If you avoid the traps described above, you may even find that your business will emerge from
the recession stronger than ever. Last week, I was with a retail lumber company in Oregon, part
of an industry that has been ravaged by the bursting of the housing bubble. One executive told
me: "Despite going from 186 people to 90, we haven't skipped a beat. It's amazing what
challenge will do to show you what is really important in a company." Exactly.

Keith McFarland is author of the #1 Wall Street Journal bestseller The Breakthrough Company:
How Everyday Companies Become Extraordinary Performers. He is founder of McFarland
Strategy Partners.
"Compassionate Downsizing": You're
Fired! Want a Hug?
Posted by BRAD TUTTLE Monday, August 10, 2009 at 8:25 am

1 Comment • Trackback (1) • Related Topics: jobs & employersrecession porn, downsizing, layoffs

Apparently, there are good ways and bad ways to fire people. From the company's perspective,
layoffs go well if no one sues. From the employee's perspective, there are really just bad ways
and worse ways to handle layoffs. But if you are laid off, don't simply accept whatever papers are
pushed in front of you to sign. Even though you don't have a job, you might still have some
bargaining power.

Over the last year or so, many companies have had a lot of practice laying off employees. When
delivering the bad news, most companies follow a carefully worded script: They avoid small talk,
and keep the meeting to under 15 minutes.

For outplacement firms and downsizing specialists who are hired to handle the layoffs, letting
people go is an art form. Depending on your perspective, they are merciful executioners, or
mercenary drones hired to do the dirty work and help a company avoid lawsuits and "scenes."
The Washington Post did a fascinating profile of one such downsizing specialist named Kim
Hall, who handles layoffs for companies ranging from lawsuits to zoos. She always dresses in
black ("somber, like a funeral"), and always remains positive, no matter what awful news she is
passing along.

Hall coaches businesses on how to execute mass downsizings and often visits companies on the
designated day to help coordinate a layoff. Then she speaks to the newly unemployed within 30
minutes of their dismissal and offers tips on how to begin a job search. She comforts those who
cry and commiserates with those who vent. She does this, sometimes, with 20 despondent
people each day. It is a misery so numbingly constant that it no longer feels miserable. It is her
job.

And lately, it is a profitable one.

Frankly, I'm fascinated by the self-help stuff these people are instructed to say right after they
drop the bomb, informing a bunch of employees that their jobs, benefits, and sense of security
are goners. They say things like:

"George, you've been a trooper. I'm sorry that this organization has moved in a different
direction."

"George, you have made many good friends here. We hope those friendships will continue."

"George, we realize that loss of employment is undoubtedly a difficult experience."

"George, you have made considerable and long-lasting contributions and they are acknowledged
and appreciated."

Not appreciated enough to save your job, George, but you know how it goes …

Unfortunately, as the WSJ reports, as unemployed numbers continue to grow, severance

packages are getting smaller. Employees can't expect things like continued health benefits any
longer—though outplacement services, which come pretty cheaply (and which I found totally
useless after being laid off), should be available for some time to come.

Still, there are things that a newly axed employee can do to get a little more out of the employer:

In the past, a rank-and-file employee could expect employers to be open to negotiating higher
severance pay, extended health benefits or compensation for unused vacation days. "An
employer would be open to trying to make it a palatable and amiable exit," Ms. Lazar says.

But now, she says, "a lot of companies are taking a hard line." They say, "this is the package --
take it or leave it."

Still, negotiating isn't a complete waste of time. If you are leaving a senior-level post, you could
have some leeway, especially if you're asked, as a condition of the package, to sign a
noncompetition agreement or nondisparagement clause.

By signing such an agreement, "you are giving the company something of value," says Mr. Hill.
That means you may be able to squeeze out something of value for yourself in return.
As for lower-level employees, they should think of things that can be of value to them, says
David Cashdan, an employment lawyer and vice president of public policy for the National
Employment Lawyers Association.

Some examples: flexibility in choosing an outplacement services firm, assurance that a person
will be placed on a rehire list, a letter of recommendation and assurance that nothing negative
will be said about the person to a prospective employer.