August, 2009

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Reduction in Force needs to be a “Surgical Strategy”

By Dr. Rick Johnson, Founder, CEO Strategists, LLC

During tough economic times a reduction in force (RIF) often becomes a necessity for many companies. Let’s face it; payroll expense is probably the biggest expense for the majority of companies in business today. Unfortunately, many leaders have a tendency to panic and make across the board cuts without regard for the long term effects, employee moral and the overall health of the company and its ability to weather the economic storm.

Gutless Management

I have stated in many of my articles that economic turbulence can create a window of opportunity to gain market share. At the very least it offers you the opportunity to fix and repair many issues that should have been addressed months or years ago but due to the fact that profit was easy to come by, many of these issues were ignored, overlooked or just swept under the rug. This is especially true if these issues had a direct impact on employee relationships.

In other words, profit covers many sins. Some of those sins can be directly attributed to gutless management. I have to qualify that statement by stating in equivocally that I am a firm believer in servant style leadership. As leaders we need to serve our employees. However, servant style leadership does not mean that we accept incompetence, below average performance or comfort zone apathy.

I would doubt that there are many companies out there that don’t have at least one or two employee issues that have been overlooked or ignored in the past for a myriad of reasons. Let me tell you a secret, the majority of your good employees know long before you do which employees are carrying their weight and are worth keeping. How many times have you struggled with an employee problem only to finally let them go and your employees said ---- “it’s about time”.

So you are now faced with a necessary RIF due to economic crisis. It would be a big mistake to make arbitrary across the board cuts. Now is the time to make an across the board evaluation of every one of your employees. Start by looking at the function contribution with respect to your revenue stream; next look at the individual’s contribution with respect to top line sales, profitability and their individual performance based on expectations. (Assuming you haven’t set precedent with exceptionally low expectations).

Take the Surgical “Pruning Approach” Strategy

No garden can flourish if it is full of weeds. Now is the time to get rid of the weeds first. Compassion is a wonderful thing and is often referred to as strength. However, in turbulent economic times, too much compassion can be a life threatening weakness. Keeping “old Joe” around simply because he has been with you for fifteen years isn’t a good enough reason if “old Joe” hasn’t been cutting it for the past five years. Keeping Sally on the payroll because she is your wife’s cousin even though she just figured out how to use the copy machine after five years will do irreparable harm to your organization during tough economic times.

A surgical pruning strategy only begins with the precision pruning of the workforce. To strengthen the company during tough time’s means you must invest in employee development and upgrades while you are surgically making precision cuts in the workforce. You may terminate three low performing or non performing employees and replace two of them with higher quality, higher performing candidates. Sales personnel offer an excellent example of the opportunity for workforce upgrades that position you to gain market share during tough economic times.

That doesn’t mean you go out and hire the sales people your competition has just terminated. That would risk hiring from a pool that may contain the cream of the crud. But, that super star sales person that works for the competition that you would love to have on your team may now be very interested in talking to you after seeing some of his coworkers let go.

The surgical approach is simple. Recognize the necessity of trimming costs but at the same time recognize the opportunity to invest in upgrading your workforce and investing in customer development and employee training. Don’t cut training.

Now is the time to invest more into training as it can create or maintain competitive advantage.

Even a Surgical Staffing Strategy Requires a Plan

A reduction in force of any size is not pleasant regardless of the economic challenge being sensationalized by the media. You are messing with people’s lives; families are involved. You have a moral obligation to make sure that your actions are honest, ethical and above board. Yes, some people may suffer but if you are in a position that requires the sacrifice of some to save the jobs and livelihood of many then you have little choice. However, your decisions must be based on some basic premises. The following tips can support your decision making process.

Make sure employees have had fair and consistent performance reviews. Determine with factual examples which employees are your top performers and which employees are below average performers. Review and analyze contributions to success. This will support your surgical pruning strategy when it comes to a reduction in force.

Don't cut back on skills training and management development. It’s easy to cut training but in reality it should be the last thing you look at. That doesn’t mean you can’t be a little more cost conscious about it. But don’t eliminate training in its entirety.

Look at compensation. You may have to take some executive pay cuts but at the same time, consider a base pay increase for those employees rated as top performers that create a direct contribution to profitability. This may be especially true for your sales people.

Communicate --- the worst thing you can do is keep employees in the dark. Over communicate. Be honest and open with employees. They are not stupid. Tell them the truth and update them often. If you don’t communicate regularly, employees will make stuff up in their own minds and what they envision is generally much worse than reality.

RIF – How Big – How Many?

Before you begin surgically pruning the workforce, you should create a surgical team that can analyze current and future staffing requirements. This is a basic part of your contingency planning process. Contingency planning is essential to recovery from economic crisis. Your team should consider turnover rates to determine how many positions are likely to become vacant through attrition. Layoffs must be looked at with respect to permanency or short term horizons. Redeployment of personnel is a factor for consideration as well as cross training employees in other functional areas.

Of course when dealing with any employee issue your human resource department must make sure that you are not in violation of any existing State or Federal laws. If you don’t have a Human Resource (HR) department, you should hire an HR consultant to support you during the process. Consider the following:

Which jobs or functions will be eliminated entirely?

What contractual recalls may be necessary based on any contractual obligations?

What are the severance costs and consequences?

Who will be involved in RIF selection and what will be the parameters?

Should there be a D-Day to announce the RIF all at once or should the RIF be done over a two to three month period? (Note: one swift move is preferred as having the least impact to overall employee moral. Staggered cuts leave the employees wondering – who’s next)

What about timing? Some states may have specific notification statutes for large RIF. The WARN (Worker Adjustment Retraining & Notification) act may apply

What about the market impact. Your competition may use it against you. Make sure your team develops a communication strategy for both the internal and external environment. Will the company offer outplacement assistance?

If you are shutting down a branch, who and how will you oversee the closing? Should you offer a stay bonus for selected employees until the division is closed?

What about waivers and agreements not to sue if you are offering a severance package for select employees. (Check with your attorney)

Times are tough—but so are you. If your mindset is simply the desire to just survive this economic cycle and you are hoping you can outlast the storm, you are actually planning for failure. Your mindset will become the mindset of your team. You are the leader. Your thoughts are powerful. They will show through any kind of front you may display. Times are tough but the sky isn’t falling. So start thinking and acting in such a way that you can gain market share in any economic climate. Take advantage of the window of opportunity. You want to thrive not just survive.

Dr. Rick Johnson is the Founder of CEO Strategist, an expert speaker in wholesale distribution consulting and strategist leadership. He has over 35 years of experience in distribution sales and operations. The first ten years of his distribution career were spent with the largest steel- processing distributor in the world. During the second ten years he started his own distribution center. In the first year, sales reached $1 million dollars and had grown to $25 million in its tenth year. The third ten years of his career dealing with financially troubled Turn-A-Round companies. After completing ten years of TAR work, he decided a decade of acting like Darth Vader was enough and became a consultant to the Wholesale Distribution Industry. Rick is frequently published in numerous magazines including a column in Supply House Times, with over 250 different articles published to date. He’s also a published author with eight books to his credit For article feedback, contact Dr. Rick Johnson at

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