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Making the Cut: Managing the Layoff Process

It seems as if some manager introduces another wrong way to lay off faithful employees every day. Shoot ’em an email. Call their names over the intercom. Order some poor subordinate to deliver the news before canning him as well.

It seems as if some manager introduces another wrong way to lay off faithful employees every day. Shoot ’em an email. Call their names over the intercom. Order some poor subordinate to deliver the news before canning him as well.

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Insensitivity and incompetence are not a new HR phenomenon. At Texas Instruments, managers reviewed employees annually by ranking them with respect to colleagues within a specific division. When management devised a magic number for optimal productivity and profitability, managers simply began cutting from the bottom of the ranks. In theory, this Darwinian approach relieved managers of an emotional burden while effectively eradicating the weakest links. In the real world, there is no termination equation.

Layoffs are often more detrimental to small, vulnerable companies than they are to corporate behemoths, like Xerox and Chrysler. When a small company announces layoffs, it runs the risk of frightening away prospective customers, who may begin to doubt the company’s stability and solvency. Simultaneously, intimate groups of coworkers are wrested apart, leaving the survivors lonely, frightened, and more prone to jump ship.

Despite rumors to the contrary, most managers suffer sleepless nights and bouts of uncertainty while deciding which employees to cut. They may also collide with colleagues whose functional groups are spared large-scale damage during the process. In these cases, a manager may feel that he has failed to “protect” his people or that the company undervalues his team and its contributions.

Leaders can work to alleviate these problems in several ways.

Address Financial Priorities

However uncomfortable open communication may be, leaders must relay information about the company’s financial position to the management team and establish priorities for future decision making. Without regular, crisp performance reports, managers may blame a business unit’s shortfalls on external factors. However, when a sales manager sees that her account executives have suffered productivity losses over three consecutive quarters, while other regions have steadily improved, she must take a good, long look at the performance issues at play in her own backyard.

Don’t Play the Numbers Game

Layoffs can improve a company’s processes and morale if leaders refuse to play the numbers game. Rather than dictating to managers the number of positions they must eliminate, leaders should determine “functional silos” where people are not fully utilized.

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Several years ago, my company, Evolutionary Technologies International, faced the prospect of workforce reductions on the heels of a big growth spurt. We reevaluated the necessity of staff based on revised financial goals. Some employees were not working on vital projects 100% of the time, and others were duplicating efforts and creating redundancies. In one case, people from two groups were determining the same statistic: which customers were scheduled to renew maintenance. By aligning our headcount with our real needs, operations were made more cost-effective. In the process, remaining employees realized the company’s past inefficiencies and actually felt energized by the changes.

Be Humane

In triaging a layoff situation, leaders should consider the emotional needs of three core constituencies: management, employees who are terminated, and employees who stay. Managers’ needs are first priority. Without a clear understanding of why the company has to cut back and how the company can be more efficient afterward, managers cannot convincingly justify their actions to both laid-off employees and remaining employees.

But managers armed with that information and the rationale supporting those hard actions can articulate the company’s position to both groups, particularly the people who are being laid off. They can offer explanations like, “The company’s cost of sales is too high, and while you bring value, the alliance relationships that you established don’t add enough to the revenue stream.”

Finally, if possible, the company should attempt to help terminated employees find other jobs, either by providing references or by proactively contacting other companies.

Improve Day-to-Day Management Discipline

Sometimes external conditions — a general slowdown in the economy or in customers’ spending habits — reduce revenue. Yet, sloppiness in a company’s management practices also adversely affects long-term profitability.

It’s human nature for managers to focus their energies on the workers who deliver and to postpone dealing with performance problems. Managers who too easily generate a list of names for a headcount reduction probably failed to act earlier on performance issues.

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For the good of its shareholders, a company should demand commitment and excellence from its workforce. Managers who prioritize this demand can minimize the need for future layoffs.

More columns by Katherine Hammer.

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