Four Case Studies in Layoffs: What to Watch Out For
In the last 6 weeks three of my closest friends have been laid off from their positions, and each case gives an example of how difficult it is to manage such programs effectively. Our research report The Manager’s Guide to Successful Downsizing highlights many of these topics in detail, but let me give a few examples here.
Case 1: Senior Program Director, very high performer, part of a project which is cancelled.
This person is a very senior project and program manager at a large healthcare provider. He has a BS in Industrial Engineering from Cornell and an MS in Operations Research from the University of Michigan. This professional has been working in call center optimization, IT project management, and product management for over 25 years. I know him as a personal friend, and one of the brightest people I know.
He was highly ranked in his organization and widely known. But the new project he took responsibility for was cancelled. In the company’s efforts to reduce costs, they eliminated this particular IT project (a system to implement a detailed project management system), so he got the axe. This particular company will be unlikely to find someone with this talent easily.
Problem: Eliminated everyone involved in a project that was cut.
Better solution: Implement headcount reductions based on performance and contribution, and improve internal mobility for those who’s projects are eliminated.
Case 2: Senior Engineering Director with some of the deepest skills in the business, part of a R&D division which is being closed.
This person, another Cornell engineer, has been working in a particular part of the mobile technology industry for more than 25 years. He has a BS and MS in electrical engineering and has invented some of the most widely used chipsets for mobile technology in the market.
He was running a design group in a mid-sized technology company which makes components for wireless devices. He was widely known as one of the best engineers and best engineering managers in the company. The company, however, moved its headquarters to another state, and after making a few bad acquisitions, decided to shut down the facility where he works. The result: he is now out of a job, and as he left he had almost 30 different people tell him they were amazed that he would be one of the people to go.
Problem: Eliminated an entire business unit in a certain geography.
Better solution: identify key high performers in a business unit and offer them other positions before implementing a blanket cut.
Case 3: Top Sales Person, overlapping responsibilities with other top sales person due to merger.
This individual, also a high performer (earned a lot of money over the years), was part of a well known financial services company which was acquired by another larger company. In the acquisition the company wound up with two seperate sales professionals both with similar territories in a similar product area. The result: the one from the acquired company (my friend) was let go.
He was also a very savvy, experienced professional and actually has deep relationships with the 10 largest buyers of this product on the west coast. He was also senior to the individual who remained.
Problem: Eliminated a proven revenue-producer because of merger.
Better solution: Modify territories to keep strong sales professionals (who always more than pay for themselves) and take advantage of key talent in an acquired company.
Case 4: Headquarters Closure at APL (American Presidents Line)
The recent closing of APL (American President Lines) provides a final example. In a somewhat abrupt move, APL decided to move its corporate offices out of Oakland, California (where I work). One of the challenges with this decision is that the entire Oakland-based IT department was cut. Well it turns out that many of the long-standing IT systems at APL were developed by technical people in Oakland, working in partnership with another IT center in Singapore. The Oakland staff and the Singapore staff worked as partners, with each team managing critical responsibilities – but both relying on the other for their deep systems expertise.
Of course some of the IT systems are documented, but the vast majority are not. So when this major closure was announced, the COO went into a panic. The company quickly realized that they needed to either keep many of these people or rapidly document the existing systems before anyone could leave.
In this case the company hired Infosys, a very successful company which has developed a very powerful service offering to help document, identify subject matter experts, and build systems to share and train others on critical operational processes (we will be providng more on this offering soon). With Infosys’ help, APL is now well along in the process of capturing this tacit knowledge and putting together a program to train the staff in Singapore to take over the responsibility for IT.
What can we learn from these examples?
These cases exemplify the tremendous pressure to cut costs in many organizations, and often the inability to make talent-driven restructuring decisions easily. A few important lessons from these examples:
1. It is very easy to lay off fantastic, highly skilled people by accident.
Some organizations do this very deliberately: they eliminate highly paid employees to make room for younger high -potentials, for example. We only remind you that most organizations state that one of their biggest obstacles to transformation is a stable of solid mid-level leaders. When you have people like this in the organization, you should cherish them and give them opportunities to take on new roles wherever possible.
2. It is easy to cut a project or department without understanding the impact of losing subject matter experts.
Organizations function through networks of informal communication. In fact, most companies agree that 90% or more knowledge in the organization is “tacit” and more than 80% of learning is “informal.” This means that organizational expertise resides in the heads, file cabinets, and PCs of senior people. Whenever we cut a department, division, geography, or project, we owe it to ourselves to find these experts and either (A) ask them to stay, (B) put them on a retainer to work part-time, and/or (C) develop a process to document their knowledge so that it can be shared.
Bottom line: Laying people off is tricky. As our research shows, many companies who undergo blanket layoffs suffer from severe business downturns in coming years, often driven by the brain-drain from the process. Think about some of the issues above as you go through your restructuring strategies.