When tough times strike, layoffs are unavoidable, and—cruel as it can be—even thriving companies sometimes need to cut down on their headcount.
But how you do it makes all the difference. If the process is poorly managed, everyone gets demoralized, and the wrong people get kept or let go.
Just ask Christopher D. Zatzick, Bin Zhao and Peter M. Tingling, all business professors at Simon Fraser University in British Columbia. They surveyed 30 North American human resources executives about “white-collar layoffs” and found that regrets were common. “More than one-quarter of the respondents indicated that their biggest error was terminating someone who should have been retained, while more than 70% reported that their biggest error was retaining someone who should have been terminated,” the authors write in MIT Sloan Management Review.
As to how to avoid these mistakes, Peter Drucker offered plenty of tips, many of them echoed by Zatzick, et al. Here are four:
1. Beware groupthink. “Done well, downsizing decisions include a variety of independent perspectives,” the authors say. “If that is not the case, the decisions are likely to be characterized by overconfidence.” Drucker would add that consensus on any important issue is a near-certain sign of trouble, and it’s a signal to adjourn and reconvene. “If you make a decision by acclamation,” he warned, “it is almost bound to be made on the apparent symptoms rather than on the real issue.”
2. Frame the decision right. The authors recommend that managers draw up a few lists before they downsize, including a list of employees they’d dismiss for one job but hire for another. This lets them focus “on the specific contributions that employees make.” Drucker would have added that a bad worker is often a good worker in the wrong role. “It is the manager’s job, especially with the young knowledge worker, to think through where a nonperformer might be productive and effective,’” he wrote in Management: Tasks, Responsibilities, Practices.
3. Judge by performance, not by arbitrary criteria. “Almost half of the executives surveyed reported using informal criteria (such as loyalty) not related to employee task performance in layoff decisions,” the authors report. As we’ve noted, Drucker felt that value judgments without clear standards were arbitrary and harmful. “They corrupt alike the judge and the judged,” he wrote in The Practice of Management.
4. Take your time. People often spend days or weeks deciding to hire people, but they fire them much more quickly. The authors point out that more than half of the executives polled said their companies “spent less than an hour per employee deciding whether to terminate each individual employee.” As Drucker put it, “Few things are less likely to succeed than hasty personnel decisions.”
What’s the most poorly managed downsizing process you’ve ever witnessed? What’s the best managed situation you’ve seen?