Downsizing is Akin to Amputation – It Creates Negative Side Effects

By: Mike Teng
Submitted: 2007-01-17 15:33:25
Print this article | Tell a friend | For publisher |

Rating:

 

Downsizing is like an amputation, which removes part of one’s body but creates side effects such as low staff morale and bad reputation. If it is badly executed, it can wrench out the innovative spirit and loyalty of the staff. Downsizing and layoffs are part of the price of becoming more competitive. The price for not doing it, however, is much higher later if the issue is not properly resolved. It is not the only remedy available to the managers to improve a company’s performance. Other remedies include increasing the sales revenues and other cost control measures. However, the effect of the downsizing is more immediate and impactful.

In the US, when the company is in trouble, it often commits corporate genocide by turning the guns on its own people. Subsequently, after a round of corporate genocide, it suffers from corporate anorexia, that is it trims itself to the core by further cost reduction. Corporate anorexia can make you leaner and thinner but it will also weaken your body. All these are done in the name of maximising shareholders’ returns.

There is a problem with one-size-fits-all downsizing. Good people also get fired. The ailing company is unable to attract good calibre staff to replace those who have left since its reputation in the marketplace is tarnished.

Loyalty from the staff makes economic sense. This is because the loyalty of customers cannot be earned without first earning the loyalty of employees. Achieving long-term growth without building a strong loyal base of customers is impossible. Unfortunately with the spate of retrenchments and downsizing, loyalty factor quickly fizzles out amongst the staff. Many employees think that the companies that they work for are not worthy of their loyalty.

There is no problem in removing the corporate fats, dysfunctional personnel or cancerous tumours in the company. In death threatening situations, it is better to amputate the diseased parts than to apply stitches and bandages. In addition, it is better to cut all marginally profitable and loss-making businesses in order to improve cash flow immediately.

Sometimes, downsizing is inevitable. For example, after merging, companies normally experience a duplication of manpower. In other circumstances, companies may need to shed staff after they lost their monopolistic position or major customers. As a result there is a slack in manpower resources that cannot be effectively deployed. Niccolo Machiavelli (1469-1527), an Italian statesman and historian said: “For injuries ought to be done all at a time, so that, being tasted less, their benefits ought to be given little by little, so that the flavour of them may last.” This is how downsizing exercise ought to be carried out, all at one time.

One turnaround manager, Randall Wright Patterson of BBK, Ltd, compared rescuing a failing company to saving a row of burning houses. “If you try to fight the fire from the beginning of the row, you will simply follow the fire and you will never put it out.

Sometimes you have to let the first three or four houses burn. During that time you design and put in place a plan of action to save the runaway business, a ‘fire wall’ per se, to save the remaining houses on the block.” Similarly, if you do not downsize the 10% of the workforce, you may not save the balance of 90%.

But one has to manage the aftermath of the downsizing exercise with due care. As the saying goes: “Even rats will desert a sinking ship.” Haemorrhage or the exodus of good calibre staff may take place and deal a quick and severe blow to the company’s vital organs.

You must try to quickly re-establish the trust of the existing staff after a downsizing exercise. Silence is not golden here. Communicate to the staff the reasons for this exercise and the plans to resuscitate the company around. Be humane in treating the people to be fired. The golden rule in a downsizing exercise is: “ Do not do unto others what you do not want others to do unto you”. For one day, you may be the one to be fired too.

Article source: Expert Articles