We’re still on the subject of Progressive Downsizing; how to gain momentum and capability while going through the difficulties inherent in downsizing (see the chart at the left). Last week we dissed the tactics of attrition and bonus induced voluntary terminations. Next up the ordinate is across the board destruction. When an across-the-board reduction is ordered, we’re finally getting to some degree of difficulty for the CEO; some difficulty but with his verbal protection shield “everyone’s feeling the same pain”. Assuming it is accompanied with strict controls on new hiring, at least there will be actual expense reduction. But there are large negative factors, and what an opportunity-for-greater-benefits wasted!
The principal fallacy of this method is that one can manage by arithmetic. Life isn’t that simple. By definition, cutting a predetermined percentage from all departments rewards the bloated departments and penalizes the leaner, more efficient groups. Unless the inevitable rehiring program is based on each department’s strategic requirements going forward, this shotgun approach will exacerbate existing imbalances. Inside an across-the-board approach one could carefully look for opportunities to be more surgical, removing layers and taking out high level non-performers but, alas, frequently the more timid CEO’s will push the reductions down to the lower end of the org chart and pay scale. The further away the cuts are from the CEO and the less he’s involved other than mandating x%, the less painful. There are serious hidden costs. The CEO’s not fooling anyone; the employees know this is a chicken approach and a chunk has been whacked out of his leadership aura. Further, department managers, knowing their CEO won’t make tough decisions, realize it is in their best interests to get their departments fat for the next round, which will surely come.
If the municipal symphony orchestra needs to be smaller, the conductor can tell each section head “cut one instrument from every category”. But if there are simply too many horns for the stringed instruments to be heard, Schubert’s always going to sound like a marching band. A great example of across the board destruction is Paradyne; read further for a real life example.
The Paradyne company had gone through many upheavals and totally mismanaged forced reductions before our acquisition. The organizational structure was a complete mess largely due to an unholy pairing of two evil forces: the parent company, Lucent, and Paradyne’s own upper management.
Lucent was highly creative in taking the easy way out. Their management visited with Paradyne’s management every six months or so. Because Paradyne was losing bundles, Lucent determined that a reduction in workforce was necessary. Lucent called an all-employee meeting to discuss everything but the layoffs then left town.
Paradyne’s management loved marching down the path of least resistance. They implemented the brainless across-the-board reduction Lucent had dictated. Regardless of organizational need, they eliminated recent hires and moved others to departments with the strongest political pull. They avoided even a shred of candid communication and made no tough or constructive decisions. The result was an organization full of overlaps and underlaps.
As you can imagine, employee morale and productivity were at an abysmal low. Whenever this type of process is implemented, intangible offsets add to the costs. The surviving staff argued about the fairness of the plan, causing tension and impacting morale. The CEO who hides behind the mantra, sorry but everyone is sharing the pain equally denied reality and insulted the intelligence of the remaining staff.
This process resulted in the company still losing a bundle, almost $5M per month, and instilled with a culture of non-performance, playing the layoff-rehire game, fattening up departments for the next kill, playing one department against another rather than targeting company business objectives; the list is endless. We fixed it; fast, but that’s another story.
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