The Right Way to Downsize a Company

As the recession lingers on, more media coverage focuses on the downsizing of companies. This is nothing new as it frequently happens as demand for products and services soften during financially difficult times. Many companies make a decision to downsize and hand it off to their managers to implement. There is a better, right way to downsize without destroying company value.

You should start a company reduction just like any other initiative by treating it as a project. The most common mistake is to treat a downsizing as a cost reduction. The best companies know to treat a reduction as a complex project that includes consideration and compassion.

Before a company starts moving people out the door, it should consider how this will affect each constituent. Yes, you will lose FTEs that will save labor cost. But what happens to the survivors? What happens to the community and shareholders? Have you considered the right way to approach these topics?

First, you should treat employees with dignity and respect. This includes showing consideration to those being fired and those who will survive. The secret sauce here is how well you communicate the project to your employees. You must deliver messages that are consistent, positive and reflect the reality.

You want to create a scenario where the departing employee will one day say, 'The Company fired me but they always treated me with respect and was fair to me." Remember, that each departing employee will tell their story to family and friends for some time into the future. Do you really want negative comments from former employees circulating around the community? Can these employees be offered positions within the company doing different jobs or at different locations?

The worst way to do this is to walk in an employee's office unannounced, tell them they're fired and have security escort them from the premises. There is no dignity or respect in this type of behavior. I do not buy the concerns about sensitive company information being taken by departing employees. You should always give departing employees a notice that their employment will be terminated on a specific date. This allows the employee time to absorb the life changing circumstances and to begin preparing their next steps. More importantly, this gives employees time to say their good-byes, retrieve personal information and ask any questions regarding benefits and other human resource functions.

Secondly, you must communicate to surviving employees that the plan will work and the future is positive. Other, these employees will be concerned about what will happen next. Will they be fired with the next round of cuts? Will they be dumped on to carry the load of those departed? You should include these employees in discussions of how to change processes, cut waste out of the system and other innovations to help the company thrive until the economy improves.

Thirdly, do not lose consideration for your customers. You should create a plan of action to meet with existing customers and to ensure their future needs will be transitioned appropriately. The last thing you want at this stage of the game is to lose customers because you did not think the reduction would have an impact. Put yourself in the customer shoes and determine how they will perceive this event affecting their needs.

Lastly, have consideration for external shareholders such as the community. If the reduction plan is large, it can have an enormous impact on a small community. You should make every effort to minimize the negative impact on the community. At the very least, be equitable to external shareholders throughout the process.