Cuts, layoffs, workforce reductions…the stories are everywhere in the media today as this economy takes it’s toll on business.  Clearly it appears that more cuts are underway in March and will be reflected in the next labor statistics report.  This approach is needed during a recession so no company can be blamed for taking this drastic move.

But how far should companies cut?

There are no easy answers to that question, but I think there is a general principle companies should follow.  Reduce only enough to make your company agile in this marketplace while minimizing your gaps in performance.

Here is an excerpt from last week’s Herman Trend Alert (sorry, no link):

Recently the Human Capital Management Division of the IBM Institute for Business Value released a white paper with its recommendations for leaders coping with the global economic crisis. Implementing this advice, IBM believes that “organizations can use this downturn . . . to position themselves for future opportunities.”

First, they advise organizations should make informed resourcing decisions. Base those informed decisions on capabilities and gaps, including the costs of rebuilding resources, costs of lost productivity associated eliminating training, and even the opportunity to acquire entire divisions or companies.

Second, and this suggestion echoes our book “Lean & Meaningful”, focus on “core” versus “non-core” activities. Look for opportunities to outsource and in-source, concentrating on what the corporation does particularly well. These moves may, in fact, improve agility by creating a smaller organization that is better able to respond to changing market conditions.

Facing imminent layoffs, organizations are most vulnerable to lose their best performers—those in the highest demand in the labor marketplace. These are people the enterprise can not afford to lose at this critical time. A clearly defined performance management process, coupled with “stay interviews” will help tackle this issue.

I have seen some companies cut too deep in the wrong areas which left a tremendous gap in their business.  As you may expect, the company was not aware of this potential liability.  Cutting to improve agility is the best method for this economy.  This approach requires an objective view of your team and a manager with the understanding that there are no sacred cows.  An effective layoff may mean letting go of someone who would not be considered in any vein during a robust economy.

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