Layoffs: how to know where to cut

The motivation behind this post is two recent series of layoffs I have been witness to.  One in my former employer’s ranks, and one in my current employer’s ranks.  These are not the first layoffs i’ve seen, I was witness back in 2000~2001 when the dot com bubble burst, and saw quite a few back then, then again recently when we shut down a start up initiative that I was part of.

Layoffs are something that nobody ever wants to live through, but until you have, I believe that you can’t understand that this really is business.  I’m not saying you need to be laid off, but you need to have been in a company that at one point went through a phase of layoffs.  It is a sobering experience that brings you back to reality.

Layoffs consist of three things, the “selection”, the “execution”, and the “clean up”.  The selection is all about how much of our salary mass do you need to cut, where can you afford to cut in your business model, and what are your plans recovering.  The second part to this, is how do you execute the layoffs, meaning communication, timing, communication to those being laid off.  The third part and potentially the hardest, is the clean up. How do you turn around and motivate those left behind, and how do you establish an action plan to get back on track.

Before I go on, I would like to put out this disclaimer, I am not an HR person, or HR consultant, and this is my opinion and experience only.

The Selection:

Layoffs are usually the measure taken after a company has gone through cost cutting, as this is a tricky one to get right.  I won’t talk about discovering the magic dollar amount or formula for figuring out how much the company needs to reduce their workforce by, that is unique to each company and reflects revenues, costs, clients, etc.  What I will discuss, is the selection of resources, roles, etc specifically around IT and technology companies and or departments.

When selecting the resources you want to cut, the first and easiest one to find, is the “dead wood”.  The resources that have been “coasting”, the ones you couldn’t quite justify in firing, but were obviously under-performing.  Next, are those that are redundant or obsolete by another person.  Following this is having 2 people do single roles, that can be accomplished by 1, not saying this is an ideal in the long term, but then again is your going through layoffs ( and not shutting down the company ) you are trying to turn things around.  How do you choose which of the two resources to keep in this situation, the one who has the most to give back to the company, the one who is the best investment, or the one who has no other option, since they are unlikely to quit after the round of layoffs if kept.  Once all the dead wood, or expendable resources are gone, how do you move into the next trimming?  Philosophies vary greatly at this point, as does execution.  Some theories go along the lines, of what positions are hardest to replace ( which ones will we have the most trouble filling when the company turns around ), these tend to be your “Subject Matter Experts”, the people that know every detail of your business, not just your company, but the competitors, the trends the clients, etc.  Next depends on the bus factor of your technology, if you have a very low bus factor for something, then you need to identify the people that you can’t lose, the people that would hurt to lose, and those you are  OK with losing.  Because you can’t kid yourself, layoffs will instill volatility, and some of the people you choose to keep, will be looking elsewhere for new jobs.

Once the easy parts are done, now comes the harder part, when you still need to cut.  Do you go for the biggest salary? the least experience? the person nobody likes? the person everybody likes?  I’ve seen it handled different ways and have had my hand in a couple of those decisions, so I can say it’s not easy, but the absolute worst decision you can make is making your choices based on personal relationships.  It may seem like a good idea at the moment, “i can’t layoff this person, because they are my friend, and they won’t be my friend if they are laid off”, but things like that become obvious over time, and it will come back to haunt you.  Your friend, should understand that it was a business decision, nothing personal.

Example 1:

I was recently witness to a layoff in one company, now I said witness, I don’t work there, nor was I involved in any of the decision making in that process, so take this as the view from an outsider.The company is a Small to Medium sized enterprise, less then 100, but more than 20.  After the series of layoffs, they have about one manager for every worker, in fact they have managers that have nobody to manage.  They have close to ten account/project managers to manage less than a handful active accounts, some front end developers/integrators with nothing to integrate, these are resources they decided to keep.  People laid off were some quality assurance/quality control, some database developers.

Lets break this down a little bit, some of these choices seem very wrong to me.  If you are facing layoffs, you would cut everything that was non-essential, and what isn’t required, and keep the resources to get me back up to the glory days.  Do I need so many account managers for a couple of accounts? or can one good account/project manager keep me afloat for a couple months.  Do I need a team of integrators, who have nothing else to do but look busy or do I need a good developer who can do integration if needed?  What choices can I live with when facing downsizing.  What is the best bang for the buck?  What makes money vs. what costs money?  Do you try to please all your clients, or take the time and really focus on those that will bring you the most money.  I read Tim Ferris’s “4 hour work week” a couple months ago, and one of the things is advocates is fire your most troublesome customer.  The one that costs you most of your time effort in exchange for very little orders, facing layoffs, I believe that you need to look not only at your salary expenses, but where are those expenses going.

Example 2:

Now a second layoff experience i’ve recently lived through, was very much more clean cut.  Entire cost centers ( teams from a geographic location ) were eliminated, no prejudice.  But what’s weird is that other cost centers have open positions, and instead of automatic transfers, it becomes an open interview process.  But then again, big business has procedures to follow.

This situation is easy to analyze, the market didn’t perform as expected, less revenue, cut your expenses.  Did the cutbacks seriously harm the companies future, no.  Will this affect the long term, probably not.  They faced a situation, and acted upon it.

 

Following these two examples, you need to question, what are the plans to get back on track.  The second layoff example I mentioned was a temporary downsizing based on lower than expected company performance, so their plan, is probably to be more lean, and to re-grow as the markets pick up.  The first example, you need to question the plans they have to get back on track, finding new clients, offering new solutions, or is this just trying to stave off closing the company as long as possible, or keep it afloat long enough that someone will buy them out?

stay tuned for part 2: the execution, and 3

 

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Tim Voet has been in the IT industry since 1997. Tim started his career doing tech support and network administration at a large Pharma company. He then spent the next 12 years doing development, leading and managing development teams, mostly in Java, but also some PHP, and Ruby on Rails. Tim has always hands on, and loves challenges that make most people cringe. When he isn't at work, he's spending as much time as he can with his wife and 3 boys. Life can be a busy time with that many young kids. He is currently open to new consulting opportunities, please feel free to contact him with your project information tim - at - timvoet dot com

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