For more than 25 years, the family business I was tasked to downsize had made it a policy to never layoff anyone. However, there finally came the day when it was necessary to break the policy. The business was being hammered by imports from China and the only way the company could survive was to lower the overhead and reduce the head count.
Developing the Game Plan
In order to identify a course of action, we started by reviewing the financials and modeling different scenarios for overhead and worker head count. This was quite mentally challenging. Being a family organization, there was a lot of emotion from all the parties involved. There was a union, long-time employees, and family members that would be directly impacted from the decisions made. After an emotional week of going back and forth on the numbers, our core team agreed on the production number we could support and the dollars needed to be reduced in each of the categories. We then translated those numbers into head counts and worked out a plan to downsize as efficiently and compassionately as possible.
3 Weeks and 3 Components
We agreed the plan should be executed within three weeks to ensure it could be done in a timely manner as to not draw out the emotional impact it would have on those involved. There were three components:
- Reduce unneeded expenses.
- Reduce management head count to the agreed upon number.
- Reduce the employee head count to the agreed upon number.
We started with management. We had several meetings and discussed the problems they already knew existed and elicited their support. We told each department what it’s final head count needed to be and for them to come back and meet two days later with their recommendations. Communication was vital at this time. We outlined to management why all discussions were not to be discussed with anyone. We kept our promise to keep them up to date on everything. We explained as thoroughly as we could how we were working to save the business. We educated them that, even though some individuals would lose their jobs, the company would be saved and the majority of the jobs would be saved instead of losing all jobs.
Management Pushes Back
Two days later we met with the managers only to learn that none of them had been capable of building a plan because they didn’t want to let anyone go. We ended up working with each supervisor on an individual basis to come to agreements on head counts. To be fair, we worked out unique solutions like sharing a particular employee that we did no want to lose between different departments. In the end, there was a lot of creative compromise. We realized it was a people business and to be successful everyone had to buy into the program.
Union Surprises Us
The next part was the toughest. We met with the union representative from each department and explained the situation as to why we had to reduce some jobs to save others. We found out fast that everyone already knew something needed to be done because the employees’ hours had been reduced. In short, they knew the business was in financial trouble. One of the union stewards stood up in our last meeting and said she knew we were doing everything we could and they appreciated our efforts to keep the factory open. This came as a big surprise. I had to turn around in the meeting and take a moment as it brought tears to my eyes.
Baseball Analogies Help
Going forward, we set up a daily meeting to review every expense and deleted those that were unnecessary. We also setup a monthly meeting to review all expenses in the future. In our first weekly meeting, there were a lot of questions from management. We explained it was like a baseball team. We had to have the top players in each position. It wasn’t that he or she wasn’t a good employee, it was simply that he or she wasn’t the number one employee. We could only have the number one player in each position. We wished each of them good luck, explained to them their severance packages, and told them we would give them any recommendations they would need. It is not easy to tell a long-term employee goodbye, but we did it with as much respect as we could. The following Monday morning, we arrived early to settle any problems that might arise. It went better than expected because of all the pre-planning. Within the week, it was business as usual.
10 Lessons Learned
I wish I could say that’s the only downsizing I’ve had to conduct. Unfortunately, it’s not. However, I’ve handled them all the same. Here are 10 valuable lessons my experiences have taught me:
- It needs to be done swiftly and at one time.
- You can never do too much planning.
- Everyone needs to buy into the program.
- It is always emotional.
- Everyone always knows what’s going to happen before it happens.
- There will always be problems that need to be worked out.
- You have to do what is needed in order to save the rest of the jobs.
- It is never easy to do.
- You are dealing with people and always have to put yourself in their shoes and treat them with respect.
- It never gets easier, but the first time is always the toughest.
Bonus Lesson #11: Don’t Go it Alone
The one last piece of advice I can give is simple: Seek guidance from someone who has done it before. They can help you manage the emotions and make the best possible decisions. They can also help support you as you deal with this challenging experience in your career. Everyone needs a coach – especially, when navigating a large business problem for the first time. Have you ever been part of a downsizing? What lessons can you share?
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Avoid painful lessons learned. Let me help solve your business problems. A fresh set of eyes can show you a different set of possibilities. Use my experience to save time and money. I have been there and done that. What makes me highly effective is my fresh viewpoint, unencumbered by company politics or culture.
Very well said. Like removing a bandage, it does need to be done quickly and thoroughly all at once. Living in an environment of perpetual fear of firing in which lots of small downsizing moves are made over an extended period of time with minimal communication will cost the company some of its “top players” in addition to the ones you plan to exit and will cripple morale. On the other hand, the approach you outlined, with a high degree of transparency, respect and a rapid implementation cycle is well designed to keep the business running as a team, rather than creating a culture of fear and uncertainty.
David,
I like your bandage analogy. Thanks for your comments.
Larry
Larry:
I like this article. I think that your first peice of advice, “It needs to be done swiftly and at one time” is spot on.
I’ve seen too many companies — in an attempt at being compassionate — drag out a downsizing process. They hope against hope that something will happen that will allow them to cut only a little. Unfortunately, this usually leads to a series of small layoffs that really undermine morale. People keep waiting for the proverbial other shoe to drop.
You’re right on — do it fast and do everything you need to do at once.
Then, you can begin the healing process with the folks who are left.
Nice job.
Bud
Bud, thanks for your comments. Do it and get back to business as fast as possible.
– Larry
I am a co-founder and former CEO of American Woodmark, a manufacturer of kitchen cabinets. Because of the cyclical nature of our industry, I have had to lead the organization through three downturns — each of which required significant downsizing. I think that Larry Putterman’s post, “10 Lessons Learned From Downsizing a Business” is an excellent guide for any leader contemplating such an action.
I would like to comment on one of his lesson points —planning. To create an effective downsizing plan, I believe you need to ask a fundamental question, “What are the desired results of your anticipated downsizing?” From my perspective there have always been three: first, the survival of the business; second, the maintenance and hopefully enhancement of the organization’s strategic and financial viability and third, accomplishing the prior two while living up to the organization’s values and culture. From my experience, leaders often focus on the first — survival —- to the detriment of the other two.
In each of the downturns that I went through, we were successful in achieving all three objectives. We increased our competitive posture by taking actions — such as closing factories and modifying pension plans — that would not have been feasible in good times. We took care to be open and honest with or employees about economic conditions as we saw them so that they could do their own planning for their families, given the possibility of their having reduced work hours and the possibility of job losses. We were fortunate that when the actions taken were over, most — although certainly not all —, of our people took the attitude of, “ Our leadership did what they had to do to keep the business going for all of us, and those that are no longer with us were treated fairly with care and respect.” Overall our values and culture were reaffirmed. Keeping these three objectives in mind as we prepared our downsizing plans, was instrumental in helping our organization to traverse a chasm and successfully get to the other side.
Bill Brandt
Bill, thanks for sharing your experiences and expert advice.
– Larry
Larry, a very thoughtful treatise on a problem that besets American industry. Scale and finances affect how we might deal with “downsizing”, but I agree with the basic steps described to accomplish it. One additional thought I have is more of a postscript than a prescription. Honest, open, and timely communication is important to getting buy-in for most company programs. I sense in this instance, a small/medium size company, it was not an ongoing priority with the owners, until the crisis loomed. Now that the dust has settled for the time being, there should be a formal mechanism for keeping the employees informed as to progress being made and a forum for soliciting their feedback re what can we do to execute better/smarter. Thanks for sharing this with me.
Tom
Tom., you are right. Big or little company, communication is the key. Thanks for sharing your comments with us.
– Larry
This is a great overview of how to deal with these unfortunate situations when they arise. My question is this: What happens if for some reason the business turns around within a short time and you need to hire again?
Maybe a separate thought/question would be “how do you keep the door open with the better employees who just didn’t make the cut?” and even how would these employees be approached while they are collecting unemployment, how the Union’s would be involved etc.
Larry, your advice is a complete guide to downsizing. I am impressed. The question we ask in our law firm is why did we wait so long to act. There has never been a regret when the downsizing is justified for almost any reason. There is a wealth of available talent in the marketplace when rehiring is necessary. Good luck.
Jim, good points. Thanks for sharing your experiences.
Larry,
Thank you for your guide. I’m leading a very difficult turnaround in Tanzania, of a company where the owners did not address key issues in the business/market. Now after 3 years of large losses and the market/competitors have all moved on, I now need to make very deep cuts and big changes to give the company a chance of becoming viable again. I read your “10 points” every day, its a great help and has guided me through this process
Jonathan…Glad your finding the list useful.