Common Mistakes Companies Make When Downsizing

Companies across the country are shedding jobs in an effort to cut costs, but many may find they have made some common mistakes that will cost them down the road, says Salveson Stetson Group, a full-service retained executive search firm.

ìThis severe economic downturn has forced employers to take a hard look at expenses and to make some painful decisions about lay-offs,î said John Salveson, a principal with Salveson Stetson Group (www.ssgsearch.com). ìThat is an entirely appropriate response – but employers can also fall victim to errors in decision-making that could hurt them further in the future.î

Among the most common missteps companies make when downsizing are:

-Not cutting deeply enough. Downsizing is always a painful process for an organization. Many companies try to limit the impact by laying off as few people as possible, when in reality business conditions may call for more significant action. ìTrying to spare employees pain by keeping layoffs as small as possible often backfires when a company has to go back and do a second round of lay-offs because they didnít originally take the actions required to sustain the business,î said Salveson. ìThis ëdribs and drabsí downsizing strategy has a terrible impact on employee morale.î

-Cutting staff without an eye towards the recovery. Many a company hascut staff so severely that when a recovery does begin, it finds itself without thetalent it needs to react to a strengthening market. Take the opportunity toevaluate business processes when downsizing to identify whetheryournow-reduced staff can handle an upswing in business when the recoverycomes. Alternatively, create a talent acquisition plan that is immediately readyto executewhen business conditions improve in order to bring on the talentrequired tosupport future growth.

-Neglecting the ìsurvivors.î ìMany leaders are so relieved to get through layoffs that they forget to pay extra attention to the workers who are still employed. The employees who stay with your company often must take on more work with fewer resources – while still reeling from the loss of their colleagues. Itís true that some of your employees will just be happy to have a job, but eventually, that tape in their head that says, ëStop whining, youíre luckyto have a jobí will stop playing. And when that does, a committed employeestarts down the path to becoming a former employee. Donít let this assumptionprevent you from being an engaged and present leader.î

-Focusing too much on current economic issues at the expense of broader,demographic issues. ìRight now, every leaderís thinking is dominatedby how bad the economy is. Many executives have lost sight of a broader demographic reality – an aging workforce still means a severe talent shortage is on the horizon. Itís true that many baby boomers are being forced to work longer – but itís equally true that in a few yearsí time, many companieswill be looking at an empty talent pipeline. Now is the time to take appropriatecost-cutting steps – and itís also the time to be planning for talent needs in thefuture.î

-Failing to realize the cost of not filling a position. Companies do a very good job of calculating the savings realized by eliminating a position, Salveson said. But rarely do they spend the same amount of time calculating the costs – some not so obvious – of leaving a position vacant. An unfilled VP of Sales job,for instance, might save $250,000 in salary and benefits; but how many salesmight the company lose while the position goes unfilled? How much momentumwill be lost in the market? What about the stars on your team who leave due tothe absence of leadership?

Salveson offers leaders and Human Resources directors these tips for making good talent decisions during trying economic times:

-Look at your world in more than one dimension. Donít operate solely in aìhere and nowî cost-containment mentality. Make the hard decisions, but lookahead and begin anticipating future talent needs. Too many leaders are so focused on the crisis at hand that they are failing to acknowledge that the economy willrecover and their talent needs will shift again.

-Go out of your way to be more visible and accessible. Remaining staff needtheir leaders to be strong, confident, and present. Pay special attention to starperformers and customers; you will want both around when the economyrecovers.Recognize that many of your younger, high-potential employees andleadersprobably havenít seen a downturn like this before. Donít assume theyknowhow to manage through this. Use this as a teaching moment. Give themthe toolsand instruction they need to be a good leader.

-Recognize that downturns always create opportunities. This may be an opportune time to make changes youíve been contemplating. Have a compensation plan thatís outdated? Always wished you could get your workforceto collaborate across boundaries? Work more efficiently? Now is the perfect timeto make a change. Youíve got your teamís attention, and the climate is ripe for anew way of operating.