Downsizing is Akin to Amputation It Creates Negative Side Effects

Downsizing is like an amputation, which removes part of ones body but creates side

effects such as low staff morale and bad reputation. If it is badly executed, it can wrench

out the innovative spirit and loyalty of the staff. Downsizing and layoffs are part of the

price of becoming more competitive. The price for not doing it, however, is much higher

later if the issue is not properly resolved. It is not the only remedy available to the

managers to improve a companys performance. Other remedies include increasing the

sales revenues and other cost control measures. However, the effect of the downsizing is

more immediate and impactful.

In the US, when the company is in trouble, it often commits corporate genocide by

turning the guns on its own people. Subsequently, after a round of corporate genocide, it

suffers from corporate anorexia, that is it trims itself to the core by further cost reduction.

Corporate anorexia can make you leaner and thinner but it will also weaken your body.

All these are done in the name of maximising shareholders returns.

There is a problem with one-size-fits-all downsizing. Good people also get fired. The

ailing company is unable to attract good calibre staff to replace those who have left since

its reputation in the marketplace is tarnished.

Loyalty from the staff makes economic sense. This is because the loyalty of customers

cannot be earned without first earning the loyalty of employees. Achieving long-term

growth without building a strong loyal base of customers is impossible. Unfortunately

with the spate of retrenchments and downsizing, loyalty factor quickly fizzles out

amongst the staff. Many employees think that the companies that they work for are not

worthy of their loyalty.

There is no problem in removing the corporate fats, dysfunctional personnel or cancerous

tumours in the company. In death threatening situations, it is better to amputate the

diseased parts than to apply stitches and bandages. In addition, it is better to cut all

marginally profitable and loss-making businesses in order to improve cash flow

immediately.

Sometimes, downsizing is inevitable. For example, after merging, companies normally

experience a duplication of manpower. In other circumstances, companies may need to

shed staff after they lost their monopolistic position or major customers. As a result there

is a slack in manpower resources that cannot be effectively deployed. Niccolo

Machiavelli (1469-1527), an Italian statesman and historian said: For injuries ought to

be done all at a time, so that, being tasted less, their benefits ought to be given little by

little, so that the flavour of them may last. This is how downsizing exercise ought to be

carried out, all at one time.

One turnaround manager, Randall Wright Patterson of BBK, Ltd, compared rescuing a

failing company to saving a row of burning houses. If you try to fight the fire from the

beginning of the row, you will simply follow the fire and you will never put it out.

Sometimes you have to let the first three or four houses burn. During that time you

design and put in place a plan of action to save the runaway business, a fire wall per se,

to save the remaining houses on the block. Similarly, if you do not downsize the 10% of

the workforce, you may not save the balance of 90%.

But one has to manage the aftermath of the downsizing exercise with due care. As the

saying goes: Even rats will desert a sinking ship. Haemorrhage or the exodus of good

calibre staff may take place and deal a quick and severe blow to the companys vital

organs.

You must try to quickly re-establish the trust of the existing staff after a downsizing

exercise. Silence is not golden here. Communicate to the staff the reasons for this

exercise and the plans to resuscitate the company around. Be humane in treating the

people to be fired. The golden rule in a downsizing exercise is: Do not do unto others

what you do not want others to do unto you. For one day, you may be the one to be fired

too.

http://www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book Corporate Turnaround: Nursing a sick company back to health, in 2002. In 2006, he authored another book entitled, Corporate Wellness: 101 Principles in Turnaround and Transformation. Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officers positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore

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