What to do before downsizing

Our chief executive officer (CEO) feels that we’re overstaffed. He has tasked the human resource (HR) department to do something. What are our available options given that our manpower complement is 30% less than the competition? — Saber Light

​It’s not easy to downsize an organization. It could be made difficult when you have a labor union that would object to whatever plan you may have, as they would consider such a plan a form of union busting. The CEO may have a good reason why he’s thinking of downsizing. But you need to clarify his objectives. 

Hear it directly from the horse’s mouth. Find out more about his perceptions and thoughts. Ask for specific details. Then prepare a financial cost analysis for severance pay. Calculate a payback period for the restructuring costs with the help of the finance department.

The information required includes the estimated payroll savings, the target number of workers to be removed, their average salary, and length of service. Then, compare it with several optional packages of say, two months for every year of service and the average fringe benefit cost at 25% of salary.

​In many instances, downsizing can be justified by falling revenue, increased operating costs, or both. It’s not enough that we look at what the industry is telling us. Maybe, the competition has high levels of staffing because of the size of their operations or the number of products or services that they’re offering to customers.

​Of course, we won’t know for sure unless we take a good look at operations. The labor laws allow employers to terminate workers due to automation, installation of labor-saving devices, or to avoid losses or further losses. The law even allows total closure of the business after major, irreversible losses.

​In that case, employees targeted for dismissal are always entitled to notice and severance pay, plus an outplacement program that could help them start a new life somewhere. The outplacement program includes training on entrepreneurship, and financial management, teaching them new skills, and career counseling which includes assistance in preparing professional-looking resumes and coaching on how to ace job interviews. 

If possible, employers can recommend employees for hiring by the company’s affiliates, subcontractors, or suppliers.

Providing an outplacement service to employees sends an excellent signal to both the surviving and resigning employees that the company cares for them.

DUMBSIZING
​If an organization has not thought through its proposed downsizing program, it could result in what is known as “dumbsizing.” The exercise could fail if the company ends up with low performers, the unskilled, and the inexperienced, forcing the company to pirate outsiders and offer them attractive pay and perks. If that happens, you’ll be back to square one.

​Think hard before downsizing. Reducing headcount can destroy social equanimity when structures are altered, work relationships disrupted, work patterns and workflows modified. It will take time for the surviving workers to do the jobs once performed by many.

​A pervasive feeling of job insecurity could undermine the efficiency goals that were supposed to be achieved by downsizing. That’s why many organizations prefer to do positive downsizing through a voluntary redundancy program (VRP).

​This can succeed with an offer of a severance pay package that could range from one to three months per year of service. This is attractive to the relatively young, with long years of service, and higher pay resulting from their merit increases.

​A VRP causes less pain, is less emotional, and is less stressful for management, targeted employees, and survivors. To avoid paralyzing company operations, management must reserve its right to refuse the applications of high flyers, those considered to be indispensable, or those who possess unique skills that are difficult to replicate.

OTHER OPTIONS
​To help your CEO make an intelligent assessment of a planned downsizing program, you must suggest other pathways like the implementation of a kaizen program to help the organization identify and systematically reduce its operational costs.

​Sometimes, mergers and consolidation are possible options, except that it takes the shareholders to do just that. It is not within the authority of the CEO to do that on his own, but he could make a strong recommendation to the board of directors.

​Another option is the centralization of backroom or support functions, like recruitment, and payroll, among other related functions, to end up with a so-called shared services setup. In other words, the solution may not necessarily limited to downsizing or rightsizing.

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