Ch. 5: Downsizing Is a Tool, Not a Goal

long-term

An important issue in downsizing is weighing short-term strategy against _____.

reversed

As Home Depot shows, disastrous downsizing can be _____ over time, even if the losses it created cannot.

Fridays

Contrary to popular opinion, _____—particularly those before a long weekend—are not a good time to announce layoffs, as it prevents employees from getting their questions answered. It is far better to announce the layoffs earlier in the week, and then offer those employees the day off; productivity almost always plummets on the day of the announcement, so employees appreciate the chance to go home and notify their families of the news.

layoff

Even if a company has first addressed its strategy, and then reengineered its business processes, _____s are often considered as a default option. The thinking is simple: we have to cut costs, so heads must roll... Sometimes, _____s will prove inevitable even after a company revamps its strategy and reengineers its business processes, but even then, a management team must understand that there are right and wrong ways to proceed with a _____ so as to minimize (not eliminate) its effect on employee morale... _____s should be seen as a last resort, with a penultimate option to offer early retirement with a reasonable severance package so that headcount reductions can result from voluntary departures. Although this does make the company seem less heartless, it also runs the risk of losing the most qualified personnel, who may jump at the opportunity, secure in the knowledge that they will have no trouble finding other employment while pocketing a nice severance package... If involuntary dismissals are in fact necessary, a rigorous reengineering process should reveal this, as well as where those _____s should be concentrated... Upon announcing necessary _____s, it is absolutely critical that a sound reengineering process has identified how many are necessary. In general, one should err on the side of caution and cut further than may be necessary; turnaround plans always take longer and cost more than one expects, and so it is better to cut a bit closer to the bone than was absolutely necessary. Naturally, this is tempered by the risk of cutting too far and having to rehire employees as expensive consultants, as mentioned previously, but the countervailing risk is even greater. Successive waves of _____s give employees the perception that the company is in a death spiral, and that they could be next at any given moment... To avoid the corrosive effect on morale that multiple waves of _____s cause, turnaround managers should "measure twice and cut once." This becomes a huge credibility test for the team running the turnaround: by putting a stake in the ground and assuring the survivors of the _____ that there will be no more _____s, they earn credibility only so far as they keep their promise. Making such a declaration and then going back on one's word inspires a lack of confidence among the workforce and further depresses morale... When it comes time to announce the _____s, management must display honesty and compassion. It is absolutely critical that employees hear about the _____s not from the media but from management itself. This has grown increasingly difficult in a world of twenty-four-hour communication, as the ease of spreading information through social networks such as Twitter means that companies should assume that if one employee has heard the rumor, every employee has heard it, even in sprawling companies that operate across several continents. As a result, the company's media relations department—if it exists—should attempt to stay ahead of the story by preparing a simultaneous mass dissemination strategy... After announcing _____s, companies should follow the general rule mentioned in Chapter Three that it is almost impossible to overcommunicate in a turnaround. This prevents myths—such as rumors of new waves of _____s—from disseminating through the company, hampering morale... Companies should also be careful to manage their news flow around the time of _____s. Although Wall Street analysts sometimes dismiss CEOs taking a $1 salary during periods of distress as an empty gesture, employees can respond well to the belief that those at the top of the organization are sharing in the pain. On the other end of the spectrum, management should be very careful about announcing CEO management bonuses or stock grants until well after any turnaround has proven successful, or they risk facing the kind of hostility that prompted workers at a Caterpillar plant in Grenoble, France, to hold four managers hostage following a _____ announcement.

clean sheet of paper, processes, customer's perspective

Hammer and Champy established three main principles for those wishing to reengineer their companies. First, one must reject the status quo entirely and "reengineer" the business from scratch in an effort to reach its absolute maximum efficient form. The rationale behind this "___1___" approach is that many of the work ___2___ at companies both large and small add no value to the customer, and therefore should be discarded entirely rather than improved. Second, this imagining of the ideal company should start from the end of the flowchart—that is, from the ___3___—and only focus on adding to this ___1___ the company's actions that somehow provide value to the customer, either by higher quality, more features, lower prices, quicker delivery, greater variety, superior service, or any other metric that customers actually care about . . . and are willing to pay for! Finally, having identified these value-adding activities, management should organize the company not around roles—such as finance, marketing, and manufacturing—but rather around the ___2___ that add that value.

clean sheet of paper

Hammer and Champy established three main principles for those wishing to reengineer their companies. First, one must reject the status quo entirely and "reengineer" the business from scratch in an effort to reach its absolute maximum efficient form. The rationale behind this "_____" approach is that many of the work processes at companies both large and small add no value to the customer, and therefore should be discarded entirely rather than improved. Second, this imagining of the ideal company should start from the end of the flowchart—that is, from the customer's perspective—and only focus on adding to this _____ the company's actions that somehow provide value to the customer, either by higher quality, more features, lower prices, quicker delivery, greater variety, superior service, or any other metric that customers actually care about . . . and are willing to pay for! Finally, having identified these value-adding activities, management should organize the company not around roles—such as finance, marketing, and manufacturing—but rather around the processes that add that value.

processes

Hammer and Champy established three main principles for those wishing to reengineer their companies. First, one must reject the status quo entirely and "reengineer" the business from scratch in an effort to reach its absolute maximum efficient form. The rationale behind this "clean sheet of paper" approach is that many of the work _____ at companies both large and small add no value to the customer, and therefore should be discarded entirely rather than improved. Second, this imagining of the ideal company should start from the end of the flowchart—that is, from the customer's perspective—and only focus on adding to this clean sheet of paper the company's actions that somehow provide value to the customer, either by higher quality, more features, lower prices, quicker delivery, greater variety, superior service, or any other metric that customers actually care about . . . and are willing to pay for! Finally, having identified these value-adding activities, management should organize the company not around roles—such as finance, marketing, and manufacturing—but rather around the _____ that add that value.

customer's perspective

Hammer and Champy established three main principles for those wishing to reengineer their companies. First, one must reject the status quo entirely and "reengineer" the business from scratch in an effort to reach its absolute maximum efficient form. The rationale behind this "clean sheet of paper" approach is that many of the work processes at companies both large and small add no value to the customer, and therefore should be discarded entirely rather than improved. Second, this imagining of the ideal company should start from the end of the flowchart—that is, from the _____—and only focus on adding to this clean sheet of paper the company's actions that somehow provide value to the customer, either by higher quality, more features, lower prices, quicker delivery, greater variety, superior service, or any other metric that customers actually care about . . . and are willing to pay for! Finally, having identified these value-adding activities, management should organize the company not around roles—such as finance, marketing, and manufacturing—but rather around the processes that add that value.

tool

In conclusion, I have always maintained that downsizing is a _____, not a goal; if cuts are necessary, then they are necessary, and while painful, it is far better to save 70 percent of the company's jobs by sacrificing 30 percent than to let the entire company liquidate.

goodwill

In order to dampen the psychological blow that layoffs will represent, managers should furthermore identify all the constituents affected by the announcement. This includes not only the laid-off workers and the survivors and their unions, but also the community in which the business operates, relevant government agencies, and the local press. With careful planning, one can mitigate the company's loss of _____ by demonstrating that it has made a good-faith effort to reduce the impact the layoffs make on each stakeholder.

business process reengineering (or BPR)

In the context of a turnaround, _____ essentially represents the operational leg of the turnaround tripod. If we conceptualize our strategic elements as identifying the "what"—the customer segment(s) we want to address and the products or services we want to offer them—then reengineering examines how we should provide those products to those customers.

grow

It is truly remarkable how many times I have seen successful turnaround professionals enter a company facing a real crisis, and upon reengineering the company's operations determine that there was an opportunity to _____ out of the problem, eliminating the need for layoffs entirely or at the very least mitigating the size of the necessary cuts.

downsizing

Managers have too often seen layoffs as a panacea for deeper underlying problems, and therefore make one of the most common mistakes in a turnaround; they fail to reexamine their strategy and core competency and then reengineer the company's processes before identifying which costs and people to cut. How does a company know how far to cut, who best to cut, or which product lines or services would be most harmed by cuts if they didn't first examine their strategy, based on what the customers want? Once that is known, _____ becomes one of the tools to implement the changes needed... Advantages to _____: -Cost savings on salaries and benefits can be significant, although they are frequently overestimated. -Layoffs can also help you get rid of underperformers, if you have documented their performance and can't make better use of whatever talent or knowledge they have. -Increased productivity can result if you have actually identified underperformers or those who remain committed to the status quo and eliminated them. -Layoffs can reduce decision time significantly, resulting in a faster, more agile company, particularly if the layoffs eliminate layers of middle management through which information must diffuse. As pointed out in Chapter Three, Bassoul's turnaround at Middleby made the company significantly less bureaucratic by reducing the layers between himself and line-level employees from seven to three, leaving the company less hierarchical and more able to respond quickly. Caterpillar accomplished the same thing through their reorganization, as discussed previously. -Layoffs signal to employees the seriousness of the company's situation, which can reduce internal resistance to the turnaround effort. -The combination of the previous two benefits can break barriers to change, convincing potential opposition within the organization to let go of the status quo and support the turnaround plan. -Layoffs also generally earn approval from banks and investors, who tend to perceive the executive ordering the turnaround as having greater credibility for having made a difficult decision. Disadvantages to _____: Ironically, one major downside to layoffs is actually near-term increased costs stemming from severance costs, which can accelerate payments at first, resulting in an actually worse cash position than would have occurred in the absence of layoffs... These costs are increased if a company's mass layoffs or plant closing fall under the Worker Adjustment and Retraining Notification (WARN) Act of 1988, which covers employers with more than 100 employees who have worked more than six out of the past twelve months and work more than twenty hours per week... Other than situations involving the WARN Act, companies should remember that their obligations to employees do not arise from a federal or state legal duty but are rather contractual in nature... Perhaps the greatest disadvantage of layoffs is that the employer runs the risk of employees filing lawsuits. I tell the students in my class—as well as the clients I represent who are contemplating layoffs—to assume that they will be sued under various state and federal discrimination laws following any layoffs, and the only hope is to consult legal counsel in order to reduce the likelihood of losing. The best way to avoid lawsuits from employees claiming they were terminated because of their membership in a protected class is to have a clear, justifiable rationale for the layoffs. One very effective defense is if the terminated employee in the protected class worked at a plant that was entirely closed, or in a division that was shut down completely; that makes it very difficult to prove that the dismissal had anything to do with membership in a protected class. Another defense is a track record of poor performance reviews on the terminated employee, but it is important that these be formally documented, not conducted in a perfunctory or largely ceremonial manner, with evidence showing that reviews were taken seriously in the organization, ideally so seriously that other poor performers had been let go in the past... Even if an employer protects itself by preparing all of these defenses and complying with the necessary regulations, it must still make it clear to all remaining employees that responses to reference checks from firms interested in hiring the laid-off employees should consist only of positions held and dates of service: the HR equivalent of name, rank, and serial number, and nothing else... Layoffs also cause the loss of expertise or institutional memory, which can be carried away by the terminated employees... Companies sometimes lay off workers, only to realize later that either they overreacted by cutting too close to the bone or that they had reduced capacity just in front of a cyclical rebound. Either way, they find themselves understaffed, and often need to rehire the workers they laid off. As you might expect, ham-fisted attempts to hire those employees back at their old salaries with their severance packages returned do not prove terribly successful, so frequently they must hire ex-employees back as consultants while still making severance payments... After layoffs, the survivors frequently display a loss of trust in management... Companies also suffer from increased risk aversion among surviving employees, who know the axe has fallen and always suspect that it could again... The potential for sabotage persists anytime layoffs are announced... Overloaded survivors can reduce a company's effectiveness post-layoffs, as they struggle to fill the roles left behind by their departed coworkers... All of these factors tend to drive low morale following layoffs, as survivors wonder whether there will be another wave. Employees still at the company tend to mourn for their terminated coworkers and feel a sense of "survivor's guilt..." By contrast, companies that manage to avoid layoffs enjoy several advantages, first and foremost among them the worker loyalty it engenders... Finally, companies that avoid resorting to layoffs also enjoy an edge in recruiting talented employees, buoyed by the reputational effects of having done right by their existing employees.

Total Quality Management (TQM)

Once the BPR has been implemented, _____ should be used to perfect the process, fine-tuning and updating the process over time.

13-Week Cash Flow Model

The _____ discussed in Chapter Four will drive much of the decision-making in a late-stage turnaround, for it presents an exhaustive analysis of the company's sources and uses of cash over the near term.

working to rule

There is some question as to how transparent the planning process should be before announcing a layoff; in order to avoid potential sabotage, paranoia, or "_____" (a situation where a union intentionally begins slowing down work according to legacy union contracts that specify obsolete rules or rates of speed), I recommend keeping the process as quiet as possible. If employees know that layoffs are coming, companies often see a spike in worker's compensation claims, as employees attempt to avoid the ax by going on disability leave.

Six Sigma

Where complete reengineering of a company is impractical, a _____ approach is a frequently used tool to examine a specific department or set of processes. Today, _____ analytical methods are applied to the reduction of any kind of subjective errors or elimination of duplication. It requires one to define a process where there are poor results, taking measurements to determine current performance, analyzing the information to find where things are going wrong, improving the process to eliminate errors, and adding controls to keep it from happening again.

Family

_____ businesses offer a slightly different variation on this question of intracompany dynamics governing the appropriate strategy when a layoff appears necessary. Rivalries among siblings, different sides of the _____, or different generations can come boiling to the surface in times of crisis, paralyzing a turnaround effort or even influencing opinions on where layoffs are necessary in order to settle old _____ scores. Alternatively, loyalty to _____ members may tempt managers to avoid needed cost-cutting, to the extent that it could constitute a breach of fiduciary duty to creditors and the entity itself when the _____ business enters the zone of insolvency.