Introduction

“We’ve got to cut $5 million out of the budget, and we don’t have time to do any significant analysis. Use intuitive skills, talk to some department heads, decide who the key people are and who is most expendable,” said the CEO of a large manufacturing company to his key operations officer.

“But, but . . .,” the vice president of operations stuttered.

“There’s no debating this. Give them decent severance packages, good recommendations, and some outplacement help to find another job. As head of this company, I know what this business needs to survive. It’s fewer people’s salaries and benefits. We’ll get by; that’s all there is to it. I want to see a list by the end of the week.”

When businesses are faced with a bad economy, declining sales, or falling profits, the conversations in the presidents’ offices often sound like this, though the specific numbers may change. It’s the no-guts, no-glory school of cutting heads. Sometimes it’s a few hundred, often it’s several thousand, and it can reach as many as 5000 or 10,000 for larger corporations. Many company heads believe that having fewer employees is the fastest way to shore up their bottom lines. Corporate loyalty may go by the wayside, but by removing a $30,000 employee here and a $50,000 one there, multiplied by 100, 1000, and 10,000, a business may be clearly on the way to a recovery.

As easy as this “meatball surgery” may seem, it is an oversimplified and potentially disastrous approach to balancing costs and revenues. A company may need to downsize staff because of specific competitive pressures causing a business downturn or it may be caught in a general recessionary environment. These are real problems that sometimes require layoffs. The company needs to cut costs and cut them quickly. But the old approach of simply lopping heads no longer works because so much has changed in the last 10 to 15 years about the workplace and people who are at work today.

Most companies now employ people who have critical business knowledge—human capital—that is not easily replaced. No successful company can survive without a solid base of experts with industry-specific information in many fields, whether it’s legal, manufacturing, or marketing expertise.

In a downsizing there is a sizable risk that the wrong people will be let go—the ones who have the most significant proprietary intellectual capital. In the desperate rush to cut costs, leaders may mistakenly dismiss the very people that will help them recover. For instance, a midsized company laid off an accountant on a Friday because it didn’t have enough work to justify keeping him. Unbeknownst to the powers that be, he had quietly taken on the tasks of troubleshooting the firm’s computer server and internal network. This was not a formal part of his job description. He was a nice guy and loyal employee who never asked for remuneration or recognition that he was helping to keep the system up and running. When there was an e-mail, software, or server problem, he simply dropped what he was doing when needed to correct it.

The Monday after he was dismissed, his presence was sorely missed. Colleagues had problems retrieving their e-mails, customer requests piled up, and some data processes stopped cold. Management was frantic to figure out who would fix the problems. The company ended up with a service contract that cost more than the laid-off employee’s salary. Moreover, the response time from the outside firm was far slower and its quality far diminished. Many companies make similar mistakes and lay off the wrong people in their rush to cut costs.

An additional problem with traditional downsizing is that employees may be so upset at their dismissal that they head straight to the nearest competitor or sabotage the firm in some way before they depart. Together, these tough problems constitute the headcount dilemma. This book—The Headcount Solution—is about how to resolve these problems.

We wrote this book after years of helping clients grapple with issues such as downsizing and staff reductions. Working with companies in the face of expansion as well as contraction has helped us learn from the difficult and sometimes gut-wrenching situations that leaders of companies face when they must decide whom to keep and whom to terminate. In many cases time has not been on our side. We have had to assist clients in making snap decisions in the face of disaster. In other cases we have had the time and resources to conduct a cool dispassionate analysis of a business crisis. Our goal in both situations has been the same: to preserve the people, their skills, competencies, and leadership capabilities to put the company back on an even footing.

Facing the reality of downsizing and restructuring a business is always a sobering, difficult experience. Every turn seems painful. Moving forward is an uphill battle. However, the seven-step headcount solution is a simple, straightforward way to cut costs and keep the best people.