The biggest downsizing mistake.

The biggest mistake is to focus solely on cost reduction without regard to value.  It’s a lot like focusing on expense instead of return on investment.
If you don’t come out of this recession with a much more valuable workforce, you’ve missed an exceptional opportunity. 
If you must downsize, you can improve the overall value of your workforce by letting go the weakest performers.  That’s weakest performers, not those with the highest pay rates, or those with the least seniority. 
The Wall Street Journal ran an article a month or so ago about how companies in this recession are letting go less capable and less experienced performers – not the more experienced (and expensive) people the way companies have done in previous recessions.
Common problems:

  1. HR or legal want to go by seniority because it’s “only fair” or it will prevent employment complaints.  You know who the best and worst performers are right?  You’ve got a good performance management system, right?  One that differentiates based on performance outcomes, right?  If not, you’ve got remedial work to do because that is affecting your ability to manage your key asset. 
  2. Finance is telling you to chop the most expensive heads to reach cost-cutting objectives faster.  The assumption is either that all people are of equal value, but come with different price tags, or the only thing that matters is cutting costs.  You want to focus on value, not short-sighted and one-sided views of generating business value.
  3. Managers are saying they want a cookie-cutter approach.   They don’t want to make the difficult choices necessary.  A financial services firm wanted to use the same seniority-based approach across the board.  The reason given was that it would be more fair.  For whom?  For the high performers with loads of experience who happened to be hired recently?  To the long-service employees who are in the in-office retirement program?  What it came down to was the managers wanted someone else to make difficult decisions for them by using an “objective” criterion that does not serve the business, but makes their jobs easier.
  4. Managers want complete freedom to pick favorites.  This is the flipside of #3.  They’re either managers who truly want to select the weakest people, or they’re the insecure and autocratic type who want to surround themselves with rotomontades.  You can tell the difference – the latter type get defensive about their picks.

What to do:

  1. Make sure you have a good performance management process – one that produces documentation that differentiates based on performance.  It does not have to be sophisticated, complex, or comprehensive.  It just needs to evaluate how well someone is doing, and provide guidance on how to improve.
  2. Stay focused on value.  Seniority and pay level don’t matter as much as overall value.  What value is years of seniority if the performance isn’t there?  What value is a high pay rate if the value received is high?
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