Navigating Stormy Waters – The Right Way To Right-Size

There has been a flurry of redundancies and right-sizing RFP’s in the last month, as regional organisations prepare for more fiscally challenging market conditions. As companies and government departments face these new commercial headwinds, how do they trim their sails to suit this change in the market weather conditions? Because, the truth is that so many get it so horribly wrong.

Is the boat really sinking?

Before your organization begins the emotionally charged and extremely difficult process of selecting staff to walk the plank, stop and ask yourself three very important questions.

1. ‘Is the boat really sinking or is it just shipping water?’

As I have travelled the globe providing advice to company directors, owners and CEO’s on company restructures, I so often find they have failed to ask this most critical first question of their organizations.

Is the Problem Too Many People or Too Little Profit?

We all know that markets are cyclical, and the commercial conditions will, at some point in the future, become favorable once more. If your business is still operating profitably when navigating through a commercial storm, do you really need to restructure in order to gain an extra point or two in your EBITDA quarterly numbers? Knowing that you will be ready and fully staffed for when the winds shift once more into more favorable market conditions; can your business sustain a reduced margin for the period of the downturn? To stay with the maritime theme, all boats ship water in a storm, however if they are seaworthy, they can sustain their forward progress, albeit at a slower pace.

In those homely words of the great Warren Buffet from Berkshire Hathaway “A profit is a profit is a profit, always”.

Using a redundancy solely as a cost cutting measure is hugely problematic: throwing away valuable talent, shedding intellectual capital and organizational learning by off-loading employees only makes a bad situation worse. The work structures in your organization still need to be completed. The efficiency, and morale, of the staff you keep will be reduced as they are overloaded with extra tasks. When your business lacks revenue this quarter, removing staff is actually placing a mortgage on the potential for future growth of the organization next Financial Year.

However, if the honest answer to this first question is that the organization is over staffed, and your ship is sinking, then you’ve begun the process of a well-thought-out strategy for change. To robustly determine if you have too many employees, the first place to look is the organization’s business plan, not its head count, which leads to the second question.

2. What product and services will the organization offer through the market downturn? Which of these products and services is likely to be profitable, or will you need to keep as a base for when the market turns positive again?

Once the shape, position and niche of the future business have been determined, only then should your organization look to begin the restructure with the third question.

3. What talent will you need to run the new organization? Who is going to crew this boat?

These questions will help frame up and plan for the post-redundancy future. If the organization can answer them honestly, it will ensure a quick turnaround from the inevitable negative effects of downsizing to positive growth in value and efficiency.

A Case Study.

In a downturn that occurred early in my Human Resource career, after the 1987 stock market crash, I witnessed the following events. The organization’s staff were brought into a room for a meeting. There had been no reason given for the meeting only that ‘everybody had to be there’. There had been some whispers of lay-offs, but nobody really had the facts. We were an organization of about one hundred people. The manager was clearly uncomfortable with what he was about to say. Once we were all gathered, he simply stood and said ‘Can the following people leave the room’ and read out a list of names. About two thirds of the room dutifully stood and returned to work, still without knowledge of the fate of those that remained.

Once the room had settled down, two guards entered from a side office, and stood at the door leading back to the office. The Manager then said “I’m sorry, but I’m going to have to let you go. I’ve got your final pays here (and pointed to a cardboard box). Once I call your name, come and collect your envelope and leave by the outside door. Nobody is to go back to their desk; your effects will be boxed and sent to you. If you want to say farewell to the other staff, you’ll have to do that in your own time”.

Then, as names were called, each employee stepped forward, an envelope was passed over and they were directed to the door. There were some tears, a great deal of anger, and not once did I hear the manager acknowledge the service, or shake the hand of any of the employees, of which some had been in the employ of the company for decades.

When the last person had left, the guards locked the outside door so that nobody could return to the workplace, the manager turned to the three HR staff left in the room and said simply “that’s done. Not a word to the rest of the staff”, and walked back to the office. The guards were dispatched to the desks of those recently departed staff with boxes and began to openly pack personal effects under the supervision of another manager. Nothing was ever said to the staff that remained, however they observed the packing, and in the absence of truth, the office filled with rumors and disgruntlement.

Many of us have seen or heard of similar situations. Even though this incredibly clumsy company restructure occurred in the 1980s, sadly, we all know that it still happens today.

Why is it that some organizations can effect a corporate restructure with dignity and respect, whilst so many others fail this very human aspect, despite the fact that it can have a huge effect on the organization’s future performance? When I travel to assist companies who have conducted a poor restructure, I find that their downsizing has been often executed with a hurried, compassionless efficiency that leaves laid-off employees angry and surviving employees feeling helpless and demotivated.

For Those that Stay

All too often with a poorly coordinated corporate restructure, the focus is on getting those unwanted staff out the door. Very little planning or thought is given to the staff who remain at an organisation after their colleagues are removed. The feelings they experience have been likened to bereavement, and it can leave them demoralized, anxious and desperate to find a new job. So, as the organization tries to move forward, how can managers ensure that the staff they want to keep are sufficiently motivated to want to stay?

I acknowledge that there may be some managerial resistance to dwell on what has happened, however, staff need an opportunity to vent. This involves acknowledging the elephant in the room and facing up to the concerns and fears of staff as they ask the very human question of ‘will I be next”. One of the most common complaints I hear from staff in such situations is that they “don’t feel they’ve been listened to”. Managers, who are also trying to move on and dealing with the awful emotional turmoil of their own, often fail to give their staff the chance to just talk it out. This is an incredibly difficult action to complete, but vital to the future of your business. People will feel raw, worried, elated they’ve kept a job and guilty they feel so happy. There will be moments of anger, but there will also be moments of empowerment. These are normal human feelings, and all will need to be acknowledged.

The ironic reality is that many organizations feel battered immediately after a restructure. How Managers create the time and space for people’s needs to reconnect, re-energize and move forward collectively in the immediate period after a restructure is critically important to safeguard the long-term future of the business. This is the time to help staff to generate new ideas for improving services to clients and have greater clarity of the company’s new purpose. You need to give staff the opportunity to air their views and let people feel more confident and better motivated.

The alarming reality is that most organizational change programs fail. Primarily, the human impact of the change is fumbled and clumsy. Too often the focus is on those that go, rather than those that stay. The irony is that, while most change in organisations is designed to increase productivity, if restructuring is not conducted respectfully and with dignity, it has the opposite effect.

If staff feel mistreated, trust in management is lost, and future changes will be resisted even more. Too often I find after a poor corporate restructure, the very people that management desperately want to keep, are simply seeking the first opportunity to leave because they have lost faith in their bosses. You must keep that exceptional talent, who are also the employees most marketable to other organizations. When they see the company treating employees poorly, they’ll start looking for a better place to work, fearing their heads will be next to roll.

Five Signs Your Restructure is heading for disaster…

1. The Arbitrary Selection Process

Many take the approach on a last-hired, first-fired basis across all departments. The method for downsizing that is most clearly defensible in a court of law, for example, is to lay off 10% of employees across all departments on a seniority-only basis. This way no employee can claim that he or she was dismissed for discriminatory reasons. This approach may succeed from a legal perspective, but not necessarily from the larger and more important concern of long-term organizational health and stability. Firing employees by a flat percentage across different departments is irrational. How can it be that accounts can cope with the same proportion of fewer employees as operations? The decision of how many employees to make redundant from each department should be based on an analysis of business needs, not an arbitrary statistic. The choice of employees for a layoff should be based on a redistribution of the work, and the skillset required for the future business, not the date the individual employee was hired. Sometimes an employee of 12 months has a skill far more valuable than one with 12 years’ with the company.

2. Give as Little Notice as Possible

Out of fear and sometimes guilt many senior executives choose to give employees as little forewarning as possible about upcoming redundancies. Managers fear that if employees know their fate ahead of time, they might become demoralized and unproductive — they may even sabotage the business. The fact is, there is no documented evidence that advance notice of a redundancy increases the incidence of either of these things.

The lack of advance notice about downsizing, however, does dramatically increase mistrust of management among those left behind. Trust is based on mutual respect. When employees discover what has been brewing without their knowledge or input (and they will when the first person is let go), they see a blatant disrespect for their integrity, destroying trust. Treat people as adults. By not giving employees information that could be enormously helpful to them in planning their own lives, you create a cycle of mistrust and helplessness that can be very destructive and require years to correct.

3. Act as if Nothing Happened

Many managers believe that after a layoff, the less said about it the better. They hope everyone will just forget and move on. Why keep the past alive? The reality is, surviving employees will talk about what’s happened whether the management does or doesn’t. If you don’t fill this vacuum with the truth, your people will fill it with rumors.

The more you suppress these discussions and act as if nothing has happened, the more toxic the discussion becomes. Recovery from a restructure can be easier if managers and employees are allowed to speak their minds freely about what’s happened. It can be a great opportunity for the team of surviving employees to pull together with a renewed sense of purpose. When management refuses to acknowledge what has really taken place, it appears heartless, and ends up feeding the employees’ sense of helplessness. If management won’t talk about it even after the fact, what else is it hiding?

4. Downsizing Effectively

What will the Post-restructure Look Like?

Having a clear, well-defined vision of the company is critical before the restructure is executed. Management should know what it wants to accomplish, where the emphasis will be in the new organization, and what staff will be needed. Without the clear vision of the future, the new organization will carry forward some of the same problems that initially created the need for the restructure. Unfortunately, many managers underestimate the momentum of the old organization to recreate the same problems later on. Failing to plan is planning to fail.

Once the decision to downsize is made, do it once. Too often, I find companies who need to downsize but can’t stomach the hard decisions, so they simply skim the surface of the organization. 12 months later, they have realized the cuts should have been deeper, and proceed to put their staff through another round of the same emotional rollercoaster. I have recently spoken with a departmental head of a corporation who has gone through three restructures in the last two years. He said his staff are demoralized, cannot trust the company management, and he can’t hold the good staff he wants to keep. Honestly, who can blame them? If you must downsize your organization, cut once and cut deep. If you realize that you have gone too far, you can always rehire or contract in those you’ve let go.

5. Failing to Respect People’s Dignity

Like the case study outlined above, the methods employed in many poorly managed restructures simply treat employees like children, or worse, a number. Information is withheld. Managers’ control over their employees is violated. Human resource representatives scurry around from one closed door meeting to another.

A restructure is an incredibly difficult and emotionally charged period for all members of staff. Anybody who has had to let staff go, for any reason, will state it is one of the hardest actions in business to complete. Being removed from your place of work, your friends and colleagues, and your livelihood can be gut wrenching. As the staff member who has been involved in the process, but has been sworn to secrecy until all can be revealed- and still has to sit in the lunchroom across from the worker they’ve recommended for termination, can create a feeling of intense guilt.

What so many managers miss when then commence the right sizing activity, but is so vital for your long term business sustainability is: How those you let go are treated is how those who are left behind assume they may be treated.

My last point that managers also forget is what the let go staff will say about the company in the market place, if their release has not been handled with dignity. How many times have you spoken with a former employee of an organization that is embittered about the way their redundancy was handled? That is, to be blunt, negative word of mouth selling. After the restructure, whether you like it or not, you are releasing into the market place a salesforce of free agents. How they proceed to talk about your company will be based entirely on how you have treated them with dignity and respect. Or not.

Making it Happen

If you have successfully planned for the new organization, treated people fairly, openly and with honesty, your company will rebound from this restructure with new vigour and purpose. The staff you have kept will understand their role in the new company, and having had time to grieve and discuss openly the process, will appreciate the new flatter structures and communication pathways. They will see that you have completed this very difficult process with great dignity, and treated those you have let go with great respect. You have provided time and space to bed in the new ideas from your staff to take the company forward through this difficult period. Importantly, you have set your organizations’ sails to face these market headwinds, leaving enough in reserve so that you are ready for when the market cycle returns to a more positive state.

Downsizing successfully is difficult. The following ideas can help to focus thinking:

• Treat all employees with respect.
• Clearly map the impact on process, systems, workload and structure well in advance.
• Have the resources to train and develop those left behind to navigate the new environment.
• Give managers the skills, resources and coaching to manage the human side of the process, or if they don’t, hire somebody in who has those skills already.
• Communicate too much rather than withhold information.
• Give employees the space and forum to accept, and discuss, what has happened

But, first of all, ask that one fundamental question “Is the boat really sinking?”


No one, from the front-line to the board-room, enjoys downsizing; but when the need for a reduction in staff is unavoidable, it can be accomplished quickly, respectfully and with dignity; and will see your organization excel into the future.

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