Downsizing May Not Be The Best

Business Partners. Teamwork, Downsizing, Layoffs, Open Book Management, Financial information, Human ResourcesMake Your People Your Business Partners

Everywhere you turn today, organizations are focusing on cost containment.

“When people talk about cutting costs, their first thought is to get the accountants in the room with the top managers to decide how many bodies to get rid of,” according to Dr. Ken Blanchard, best-selling business author and cofounder of The Ken Blanchard Companies.

“But getting rid of people is not the only way to cut costs. There are many, many costs that can be saved if you will make your people your business partners. If you can provide all your employees with information, this open-book policy will unleash a torrent of ideas and commitment.”

Blanchard points to research that shows that companies that do major downsizing don’t perform any better after the process.

“It’s not your people that are always the problem,” he explains. “A lot of times it’s your systems and how you are operating the business. In hard times it is a good time to buckle down and say, “What can we learn? What are we doing well? How are we going to take some of the things that are weaknesses and make them strengths?”

A better approach, according to Dr. Blanchard, is for leaders to take immediate action including sharing information about the current situation, focusing on both people and results, and helping people manage the ups and downs that lie ahead.

Sharing Information

“I think that there is a tremendous need for leaders to be the ‘hope champions’ and also involve your people. Don’t go silent because then everybody is going to be worrying about what is going to happen. Involve your people. You need them.

“More than ever, this is the time to open your books so that everyone knows what the situation is and you can get started with getting everyone thinking about what can be done to cut costs. Is there any way that we can increase revenue? What can we do?”

Sharing information about the situation does a couple of things for your company. First, it helps to eliminate fear because people can see the same information that you are seeing. By sharing it with them, you are communicating that you are being open and honest with them. There is no hidden agenda—here is what we are facing.

Second, it helps to create buy-in. Now that everyone knows what the situation is, people can decide how they can take action to improve things.

As a case in point, Blanchard points to his own company’s experience during 9/11. As Blanchard explains, “We lost a lot of money that month and faced a real deficit if we didn’t cut back about $350,000 a month in October, November, and December.

“We really were very open with everybody in the company. We said, ‘Here’s the situation. We need your help. What can we do? We are committed not to let people go so what can we do?’”

At The Ken Blanchard Companies, the decision was made to have everyone take a salary cut, except for people making under $50,000, who were having a hard enough time. The company also stopped matching 401(k) contributions.

While the pay cut’s immediate effect was to reduce the company’s costs in the critical months to close out the year profitably, the pay cut also brought a sense of shared accountability and responsibility into the equation. With everyone sharing in the pain, people were also equally invested in finding solutions to get the company through the crisis.

Small task forces were organized to look for ways to increase revenues and cut costs. This participation resulted in departments throughout the company finding all kinds of ways to minimize spending and maximize income.

“One of the things that I hope for with our company,” explains Blanchard, “is that when we are having good times, everybody is celebrating and when times are tough, everybody is losing sleep together as well.”

Focusing on Both Results and People

Blanchard points to others who share a similar philosophy.

“I recently participated in a panel at Grand CanyonUniversity that included Colleen Barrett, who just stepped down as president at Southwest Airlines. She feels that leadership’s role in tough times is to give people hope—to say, ‘Let’s stay with what has got us here, let’s keep on going, and we can pull out of this thing together.’

“At Southwest everybody knows that they are committed to their people, they have never laid anybody off—even in a crazy industry.

“Jim Collins, in his book Good to Great, says that the great leaders are focused on both people and results—even in tough times. Where leaders make mistakes in tough times is that they forget about people. They start to just focus on the bottom line—how are we going to do this? And they forget this important element—both people and results.

“That’s why I think it is so important to keep communicating with people and not forget who got you there. At the end of the day when everybody leaves the building, your company just left.”

To illustrate his point, Blanchard describes a question he has asked managers for years. “If you had a choice of a fire taking out all of your equipment and your buildings, or all of your people walking out together in one day, which would be worse?

“They all say losing your people is worse. You can always rebuild the buildings but you need your people. And so I think that one of the biggest mistakes is just focusing on results and forgetting about people and not involving your people.

Looking Ahead

Current economic pressures can make it seem like the only option is to choose between people and results. But this is short-sighted, according to Blanchard, who explains that good people can always go somewhere else if they feel that their organization doesn’t balance a concern for people with a concern for results. What works in the short term can end up holding the company back in the long term.

“I think the benefits are that when we pull out of this economy, you are going to really take off because your people have been prepared, they have been working, and they are ready to go. But if you ruined your whole human organization while you are ‘trying to save your company,’ then all of a sudden when you have opportunities again, you’ll have nobody to execute.”


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