I was speaking at a Business Lunch recently and was asked by one of the attendees what I thought about downsizing (she is a lawyer who has had experience in the area.)

Downsizing too often becomes the step of first resort, rather than the last. Toyota Australia is just releasing 350 employees and, as is typical of these kinds of situations, is doing so without any consideration for the after-effects: for both staff and the company. You can read the following article, released today, that shows some of the poor management and leadership at work: http://finance.ninemsn.com.au/newsbusiness/toyota/8452115/anger-as-toyota-workers-lose-their-jobs . The anger that is being generated by taking people to a room across the road and handing them an envelope is natural. The lack of courage shown by the leaders is, unfortunately, also typical. Rather than have a face-to-face discussion, Toyota has simply pulled the plug, treated staff like potential criminals and denied them the opportunity for even meaningful farewells, let alone lending assistance for finding future work.

I commented that downsizing has many potential risks. Here are a few of the points I made in relation to poor management of letting people go:

• You generate anger in the employees through a poor process – anger that comes back in the form of sabotage or lawsuits. (The lawyer who had asked the question was nodding vigorously).
• You lose vast experience that is difficult to recoup (see my staff turnover costs calculator in another blog entry to determine the dollars per person lost.)
• When the business has an upswing, you will have a tough time recruiting experienced people back, leading to great losses in productivity and profitability.
• The rest of the staff’s productivity dives as people wonder “Am I next?”
• Your firm’s reputation may suffer, causing customers to turn away.
• It becomes a deepening, self-fulfilling cycle: cut workers, productivity and profitability go down, cut workers to raise profits, productivity goes down, etc. etc. Pretty soon there’s no company left.
• As one of the interviewees in the article stated, “They preach about family this company but they treat you like dogs”. It’s easy for cynicism to (rightly) set in. Why should they take management’s other assertions seriously?

You cannot cut your way to growth. It requires investment and effort. Employees can be highly motivated to save their positions and create further growth for a company they believe in.

During the GFC, there were a number of Australian firms facing trouble who, realising these negatives, asked their staff for ways to find money and stop jobs being lost. Staff took voluntary reduced hours, sorted out shifts, made improvements and general efficiencies, kept all of their staff and then saw productivity and profit soar after the GFC troubles were over – all without a job being lost. There is a time to downsize, but it should be a last resort.

A Positive Approach to Downsizing

I have a client who is looking at a long-term downsizing of their staff due to industry changes. Management knows the possibility is on the horizon but are unsure when. Instead of keeping everyone anxious about their jobs, their HR director has actively engaged HR in finding ways to boost employee’s ongoing work satisfaction and output and increasing the job matches to the work they are currently doing. They are also helping their staff to develop entrepreneurial and professional skills that will serve them well in the future (including running outplacement education such as resume building, interviewing skills and so on), while benefiting the company as well.

This client has been using Harrison Assessments through our company, Lamplighter Performance Consulting, as part of the process. The profiling has provided invaluable career development advice, but just as (or more) importantly provided ongoing guidance for the job and professional development and management of the personnel. The tools also help predict staff performance under anxiety and uncertainty, so the Harrison Assessments are proving a tremendous resource as the entire organisation undergoes profiling.

This client is putting their money where their mouth is and it is positively impacting their people and their bottom line. This is an initiative fully resourced and supported from the top down, through and out.

Before the firm embarked on this program, there was a significant decrease in employee performance. The HR director has told me that since starting their concerted staff development for the future program, performance has risen and is going well despite the ongoing uncertainty surrounding the organisation as a whole – extremely important when they are managing billions of dollars worth of funds for their own clients every day.

The lesson? Invest in your staff (and yourself, for that matter) first, before you think that cutting costs by cutting staff is the best option.