A reduction-in-force (RIF) is one area where companies commonly make a bad situation even worse. In fact, effectively conducting RIFs is an area where a significant “Knowing-Doing Gap” exists. In other words, there is an abundance of available information to help us effectively conduct a RIF, but many companies do not apply this information to their practices. Applying the tips in this report can help you make the right choices in the face of a hard decision like reducing your workforce.
Nearly half of all companies who conduct RIFs experience reductions in productivity – which makes matters even worse for the company. In addition, companies experience softer, yet equally debilitating effects of a RIF. Following are the percentage of surveyed companies who expressed these negative by-products of conducting a RIF:
- 86% experienced lower employee morale
- 78% saw eroded trust in management
- 35% observed less effective teamwork
- 55% expressed reduced ability for their employees to manage stress.
William’s Law states that a system’s response to a request for change is best predicted by knowing the outcome of the last change. Therefore, it makes good business sense to take the time to plan for tough changes like a RIF. You will reap the benefit of greater acceptance to subsequent changes you will require of your organization.
The end of this report provides a checklist to help you effectively make the best of a bad situation. We do not pretend that this checklist will make a RIF easier to conduct, just more effective toward meeting your short- and long-term business objectives. We will break the process into three phases: before, during and after the RIF. We will go into more detail in the before phase because like any project, if a RIF is well planned, implementation tends to go more smoothly.
Before the Reduction
The key to this phase is self-knowledge. Gain a better understanding of your business by conducting a simple 80/20 analysis of the profitability of your different products, services, geographies, market segments, etc. This analysis will reveal the 20% of your business that accounts for 80% of the results. If the 80/20 rule holds true in your company (and it does!), this means that the most profitable 1/5 of your company (sales force, products, regions or whatever slice you want to take) is 16 times more profitable than the remaining 4/5. Make sure that this less profitable 4/5 is meeting a business need or eliminate it. Unless the lowest performing parts of your business are strategic, cut your losses (do not throw good money after bad).
Next, identify your company’s top five expense drivers. Then, reduce expenses first in areas that do not compromise your long-term plans (possibly travel, contractors, express mail, overtime). Be cautious about eliminating company rituals that are at the core of your culture. Consider a “share the pain” approach to expense reduction (e.g., across-the-board salary cuts, unpaid days off, 4.5 day work week, increased employee cost sharing for benefits).
Charles Schwab took a “share the pain” approach. They cut executive salaries and bonuses, tightened discretionary spending and asked employees without direct customer contact to take three unpaid Fridays off during the next three months. Although Charles Schwab ultimately had to cut 5,000 jobs, they sent a strong, positive message to employees and the market about what they value and how they operate. More importantly, Schwab had harnessed all of the company’s intellectual capital to help sustain its competitive advantage.
Southwest Airlines is another good example of reducing expenses before reducing headcount. While most of the airline industry reacted to the economic downturn with swift, deep job cuts, Southwest looked at more creative ways to reduce their expenses. They created a win-win financing arrangement with Boeing to defer delivery of planes that they were contractually obligated to purchase while still enabling Boeing to book the sales. This move freed up cash until things turned around. To date, Southwest has not eliminated any jobs and continues to capture market share. Both Schwab and Southwest put substance behind the often hollow motto, “Our employees are our most valuable resource”.
The realities of your business may require you to reduce headcount. If so, make sure that you do the right thing – from a legal, employee relations and market perception standpoint. Resist the convenience of an across-the-board cut and use this opportunity to get rid of your ‘C’ and ‘D’ performers. Even if you are closing a location, try to re-deploy your best performers elsewhere. One of our clients had to eliminate 70% of its sales force, but they knew that the remaining 30% of its salespeople accounted for 90% of the company’s revenues – the 80/20 Rule at work!
If you must reduce your headcount, apply a structured process to ensure that you keep your best employees (performance and attitude). This will help you avoid discriminatory decisions. Prepare your managers with scripts and a clear process to follow on the announcement day. Arrange for severance, outplacement and community resources for the affected employees (state unemployment agencies, local libraries, industry networking/support groups). The more support you can afford to offer, the better you are protecting your company’s reputation as a preferred place to work. Don’t forget to prepare release letters for employees depending on the type of consideration they are given.
Self-knowledge also applies to the people side of your business. Be aware of the perceptions of your employees. The best way to control this (and avoid creating an “organizational blind spot”) is to communicate honestly about your plans and challenges. If you are dishonest with your employees regarding your plans and challenges, your employees will know it. Executives who underestimate their employees’ intelligence, typically overestimate their own.
See our Leading the Way Through Tough Times: The Power of Assumptions report for a model of how your own assumptions about tough times ultimately affect your entire company.
During the Reduction
The keys to this phase are consistencyand speed – consistency in your decision-making, communication and the speed of orchestrating the RIF. Make the announcement mid week. This gives affected employees access to outside services. At the same time, the weekend is in sight and allows surviving employees to process the reduction and refocus by Monday.
Prepare packets for affected employees that contain necessary checklists, information, contacts and resources to facilitate a smooth transition.
Communicate individually with each affected employee. Share the same reason for the RIF with each exiting employee (e.g., cost control, reorganization, realignment, etc.). Remember, whichever term you use, it all means the same thing to the affected employee. Balance respect for the exiting employees with the security needs of your company (e.g., computer and building access, company property, credit cards, and cell phones). Where you find this balance depends on your type of business and your underlying assumptions about your employees.
After the Reduction
The keys to this phase are focus and discipline – focus on future performance expectations and use discipline in executing your plans. Since your own behavior and the culture you have created have already pre-determined the level of organizational discipline, focus is the only one of these two keys you can control at this point. See our Lessons from the American Franchise Business: Building Your Business Operating System report for more on discipline.
Continue your communication with employees. This time do more listening than talking. Be honest with yourself and your employees about the prospects for future changes. Conduct more frequent meetings than usual during the month after the RIF. Provide opportunities for survivors to express their concerns. At the risk of sounding too psychological, we continue to witness illustrations of the saying; “Unexpressed emotions don’t go away, they just rear their heads in uglier ways”.
Refocus survivors on new performance goals and roles. Be explicit about how the company will support the achievement of these new goals. Simply saying, “We are going to raise the bar” without explaining the why, when and how will only build employee resentment. Enlist your employees in solving the problem (getting your company back on track). Remember, the RIF only addressed the expense side of your business. You should have kept your company’s best minds and attitudes to grow your revenues, so make sure that you use them!
The following RIF Checklist reflects the principle that successful projects consist of 90% planning and 10% implementation. There is much more to do before the reduction (planning) to ensure that it goes well during and after the reduction (implementation).
Before the Reduction
- COMMUNICATE with employees about the state of your company
- Conduct an 80/20 analysis. Cut your losses (do not throw good money after bad).
- Identify top five expense drivers. Reduce expenses first in areas that do not compromise your long-term plans.
- Consider a “share the pain” approach to expense reduction.
- Apply a structured process to ensure that you keep your best employees (performance and attitude) and minimize legal exposure.
- Prepare your managers to consistently and quickly announce the reduction.
- Arrange for severance, outplacement and community resources.
- Prepare release letters and notices for employees, if appropriate.
During the Reduction
- Make the announcement mid-week.
- COMMUNICATE individually with each affected employee.
- Provide informational/resource packet for each employee.
- Balance respect for the affected employees with security needs of your company.
After the Reduction
- COMMUNICATE to surviving employees. This time do more listening than talking.
- Provide an opportunity for surviving employees to process what has happened.
- Refocus survivors on new performance goals and roles.
- Enlist your employees in solving the problem (getting your company back on track).
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