Downsizing Doesn't Always Do the Job, Think Before You Chop

02/27/07

Outplacement firm Challenger, Gray & Christmas says that downsizings increase significantly in the last four months of any year. Why? Employers pare down budgets in anticipation of the coming year.

“This year will likely be no different in terms of year-end job cutting,” said CEO John Challenger. “In fact, it may be worse in light of health care costs as well as new worries about deflation, a slowdown in consumer spending, and the potential for more corporate scandals, all of which could impact 2003 budgets.”

Lower Costs Not Guaranteed
Since people are usually the most expensive line item in any organization’s budget, cost cutters first look to layoffs to solve budget woes. That’s a mistake, according to Barbara Davison, a consultant with Saratoga Institute. “If you’re cutting people,” she says, “simply… to reduce costs, it will have minimal, and perhaps only momentary, impact on the organization. Eliminating people without first having a method for determining how many were needed to begin with is a short-term solution that is bound to create the same crisis over again and in a very short time.”

Why is that? According to Jeff Olson, author of the Agile Manager’s Guide to Cutting Costs, “Many companies that slim down botch the job. They don’t reduce the amount and kind of work the people were doing.” As a result, productivity declines, and demoralized workers try to do the work of two.

HR Has a Role
If you must cut people, do it intelligently. Olson: “Look around and ask, are we doing the right things? Do we have the right people to do them? Do we have the right number of people to do them? How might we reorganize our operations to reach goals more efficiently?”

You should also heed a key principle advocated by the legendary management thinker Peter F. Drucker: “Starve the problems and feed the opportunities.”

Analyzing the problem in these ways will give you the ammunition you need to support your view of what needs to be done especially if you find out that people aren’t the problem and more fruitful cost-cutting opportunities lie elsewhere.