Chapter 10 Getting Started Taking stock Phased approach; realistic timetable 1. Set targets 2. Lay groundwork 3. Get facts 4. Identify opportunities 5. Plan improvements 6. Make it happen External resources
Excerpt from Downsizing: Reshaping the Corporation for the Future
By Robert M. Tomasko
Downsizing has been a difficult process for many companies that have been through it. This has been especially true for those that have tried to balance the need for immediate cost reduction with a concern for long term effectiveness. And also for those who wanted to operate leanly, but without the need to treat their employees meanly in the process.
This book tries to stake out a middle ground between hurriedly implemented, steamroller-like cutbacks, and lingering toleration of the costs and other evils of corporate bureaucracy. Its title, "Downsizing," is incomplete without making some reference to the purpose of the streamlining: "Reshaping the Corporation for the Future." Its main message can be summed up in eight guidelines:
- Build, don't destroy. Plan restructuring around sources of future competitive advantage, not just the elimination of today's internal problems (Chapter Three).
- Flatten the pyramid, not the headcount. Focus on minimizing the number of management levels between chief executive and first line supervisor, not just on headcount elimination (Chapter Six).
- Avoid layoffs by managing people flow. Wide scale involuntary terminations and unfocused early retirement windows have been overused as tools to cope with the talent surpluses that often result from downsizing. Instead give attention to tactics such as: targeted incentives for resignation, reemployment and redeployment programs, conversion of full-time to part-time and contractor-filled positions, temporary pay and hiring freezes, and surplus talent-based diversification (Chapter Seven).
- Anticipate downsizing's downside. Managing a sharply streamlined company is quite different from running one with many management layers and staff police. New rules and different tools frequently need to be applied (Chapter Eight).
- Stay streamlined. Eliminate the roots causes of excess bureaucracy: the tendency to own overhead and do everything inhouse, corporate cultures based on mistrust, management-breeding compensation systems, and inabilities to share resources across organizational boundaries (Chapter Nine).
- Start before you have to. Act on your schedule, not that dictated by an aggressive competitor or junk bond fueled raider. All these guidelines all require a measure of lead time to be successfully implemented (Chapter Nine).
Taking stock of your situation
Before starting any change process, though, it is helpful to stand back from your company's immediate situation and try to get a fix on where the business and its senior management team is with regard to the overall downsizing issue. What problems are they aware of? What issues are they motivated to deal with? What are their blind spots, and what sacred cows will they resist disturbing? This understanding can, in turn, guide your customization of an approach built on the six components.
Is downsizing a relatively new concern of the business? Have few of its competitors or industry peers made significant attempts to cutback or streamline? Is the most immediate issue one of "consciousness raising"? Are you most concerned with finding a way to light a fire under the feet of the executives who need to take action?
In North America the number of companies in this situation is rapidly diminishing, while in Europe (both Eastern and Western) this number is increasing. For all of these firms comparing organization structure, overhead costs, productivity measures, and the like with those of companies in industries less sheltered from the recent wave of downsizing might highlight areas of potential concern otherwise hidden in the more common comparisons among their industry peers. Companies in the electric power and local telephone business can learn by benchmarking their operations against those of airlines and long distance communication businesses - ones that have already had several years to cope with the organizational demands of deregulation . European firms may do better to compare their operations with U.S. or Asian, not local, norms of productivity.
If you are the chief executive, or the head of a division, in a relatively stable industry your hardest problem getting started may be convincing your mangers of the need to make changes at a time when all is going well. One Citibank executive faced this problem recently. His situation was compounded by the impressive productivity improvements his division had achieved over the past several years. But he felt that - by completely rethinking the logic of how his group was organized - a "quantum' improvement in productivity could be realized. After several months of seeding his organization with "gentile" hints about these economies, he decided a more frontal assault was necessary.
He took advantage of his knowledge that some of his subordinates perceived him as a potential Atila the Hun when frustrated. He invited a team of outside consultants to make a presentation to thirty-five of his key managers. The topic of the presentation: other companies' experiences with downsizing. At the conclusion of their talk, he thanked the consultants for coming, turned and faced his managers and made them one of those difficult-to-refuse offers. He stressed the necessity of moving forward with the reorganization before this part of Citibank's favorable competitive situation changed and they had no choice. He made it clear that point was not open to further discussion. But he did give them a choice - they could either hire the consultants to work with them over a several month period to plan the restructuring, or else he was prepared to announce his own reorganization plan the next week.
The managers chose to work with the consultants.
Lighting a fire is more difficult when you are not the person in charge. A planning manager in an east coast electric power company followed with increasing concern news about cutbacks and productivity improvements in his industry. He talked with managers in other power companies that had been through downsizing. He, secretly, benchmarked his company's own employee productivity against that of comparable company's in the industry. The results were dismaying, but his boss cautioned him not to disclose the results to others in the company.
Finally a meeting was arranged to discuss the situation with the president. The president was noncommittal about taking an action, or doing any further study. "Timing's not right. Rate case is coming up. Stock price is doing well; don't want to send a negative signal to Wall Street," he said. His comments heightened the frustration of the planning manager, who knew that the company's high cost position was certain to slow earning growth within the next year or two. By then, he assumed, the president would act, but without the time available for detailed study and gradual implementation. Fortunately staff managers in many other companies have had more success building awareness and executive support about the need for change. More are realizing that downsizing, in its early stages, is as much an internal political problem as it is a productivity issue.
Many U.S. companies are well past the lighting a fire stage. Their management teams are already well convinced of the need to improve their organization. They may have a specific objective or problem area in mind, and are well motivated to roll up their sleeves and cope with an immediate problem. The questions most on their minds have to do with what actions to take next. Their primary concern is about how long it will take to achieve results.
While companies in the light a fire phase are most concerned with how to build motivation to take action, the key need for those in the coping with an immediate problem stage is often that of restraining or redirecting the enthusiasm for taking immediate action.
In these business the key issue is one of problem identification. Have they identified the real problem, or are they fixitating on a symptom? These are the companies most in danger of starting a quick fix cost reduction program in a way that looses sight of an often more important objective of becoming sustainably competitive. These are the companies most in danger of falling into the demassing trap discussed in Chapter Two. They need to look hard at their immediate situation and problems and ask to what extent it makes more sense for the long term health of the business to become a "planned downsizer" - outlined in Chapter Three- rather than a demasser.
Companies concerned with coping with an immediate problem make up the greatest share of most management consultant's clients. One of the greatest tests of a consultant's professionalism is the ability to resist taking on a "quick fix" assignment when the consultant knows at the outset that, in spite of the potential client's eagerness to fund a large study to start immediately, focusing on the problem at hand will only divert attention from the deeper organizational issues that need to be addressed immediately if the corporation is to maintain its competitive advantage.
The trick here is to continue the process of awareness building, possibly by using some of the examples cited in this book, in a way that the motivation to make immediate change is built upon, but done in a way to broaden the agenda of problems under consideration. Then, to ensure the motivation is sustained, start with the agenda items offering the biggest bang in the shortest period. Build momentum with these early successes to tackle the harder, longer payoff problems. Just don't ignore them in a rush to get back to business as usual.
Many corporations have been through some sort of streamlining or restructuring process. For them the key issues are the immediate concern of dealing with the aftermath of downsizing, and the more future-oriented need to protect the hard won gains that have been achieved. The first of these is relatively easy to focus attention on, the second more problematic.
Downsizing's aftermath has been a time of significant difficulty for some corporations, especially those that chose to demass their work force. Problems emerge such as overworked employees, weakened morale, limited risk taking, loss of control, adrift activities, and possibly critical skill shortages if the cuts were made too deep.
Staying streamlined, as pointed out in Chapter Nine, is frequently harder than getting there. Keeping bureaucratic fat from returning requires a fundamental rethinking of management practices and habits of organization that have become deeply ingrained. A process needs to be gone through that puts issues like "we tend to do everything in house" and "we need an elaborate management structure to maximize control over our low skilled workers" on the table for close examination. It is a process that has to be willing, as in the previous Citibank example, to continue to look hard for quantum improvements even after a history of impressive productivity improvements. It has to be based on the kind of emerging awareness at companies like Ford and General Electric, that remaining lean requires continuous efforts at improvement.
A phased approach, a realistic
Two overriding considerations govern the most realistic approaches. They move on a broad front without trying to accomplish everything at once - they attack downsizing in a phased manner. And they do not try to achieve overnight results. It is difficult to move from goal setting to implementation planning in less than four months, and do the work in a cautious and intelligent manner. Frequently a six to ten month period is required to develop a plan of action. And the plan may require several years to fully implement.
The chief executive of a large chemical firm spent a year mulling over with his top management team the possibility of undertaking a company-wide organization restructuring. Finally he authorized a planning study and hired consultants to help his managers do the planning. But he insisted that the plan be completed within 90 days - less if possible. Eager to get the assignment the consultants agreed to the schedule and work began, compressing a multi-step approach that usually required 130-150 days to fit the chief executive's requirement. One month into the study it became clear that the 90 day timetable was unrealistic. The information that was being hurriedly collected had many gaps, the rushed analysis was of poor quality. Scheduling difficulties made it impossible for the management team to come together frequently enough for them to have much sense of ownership in the study.
By the end of the second month these difficulties were presented to the impatient chief executive. and he agreed to a more realistic deadline. Unfortunately some of the rushed work had to be redone and missed meetings rescheduled. The total duration of the redirected project: 220 days, considerably longer than the original, realistic 130-150 days.
Here are the key components of a well planned, phased approach to downsizing. These six elements should not be taken as a rigid, lock step methodology, but as a reference point against which you can check your more fine-tuned approach for comprehensiveness and proper sequencing.
1. Set targets
These targets may be expressed with reference to the company's recent past situation. Or they may focus outwardly: to be better than a specific competitor or to be among the leaders of your industry, or to build an organization as efficient and effective as any global competitor. When Black & Decker set out to reshape its organization it announced its intention to both "cut and build" - to find a balance between reducing costs and investing in efforts that would increase sales.
Downsizing, or being downsized, is not an end in itself. It is a process a company goes through on the way to achieving key business objectives. Downsizing is successful only if the business objectives are met, and met in a way that does not cause the company more harm than good. And met in a way that the solution does not quickly unravel. All these considerations need to factor into a clear statement of what outcome the business is trying to achieve.
2. Lay groundwork
What kinds of preparation are most critical to organizing for downsizing? Earlier the need to set a realistic timetable was discussed. This is a point where many efforts go wrong; it is hard to over stress its importance.
This is also the time to layout a comprehensive employee communications program and begin the ongoing effort of not allowing information vacuums to form by providing frequent, authoritative information. Multiple channels need to be used here, do not just rely on bulletin board postings or memos to managers. Supplement them with periodic face-to-face briefings, confidential "hot line" telephone numbers to allow concerns to be immediately dealt with, and other out-of-the-ordinary information carrying vehicles. To keep this from becoming a one way communication dump, set up mechanisms - such as periodic focus groups or surveys - to keep taking the pulse of the work force, and use the issues raised through them to shape the content of the messages sent.
The objectives of such a communications effort include:
- gaining a shared understanding of the situation facing the company and the actions required to keep the business healthy,
- enlisting the active involvement of the employees in the effort to plan these actions, and
- short-circuiting rumors and unfounded concerns before they have a chance to damage employee morale.
Implementing such a program is hard for many businesses. It involves admitting to having a problem before laying out its solution. This is something that makes many strong executives more than a bit uneasy. They prefer to wait until the planning process has run its course, all the answers are determined and ready to announce. Unfortunately this preference flies in the face of the reality in most companies that it is impossible to keep advance news of major organization change from spreading, usually in an uncontrolled and inaccurate way. The rumors almost invariably tend to be worse that the reality. The only way to check them, and their damage, is to preempt them with ongoing, accurate information. Even if all the answers are not in place, some indication can be given of when they will and what must be focused on now to get to that point.
This, not the conclusion of the planning process, is the time to plan and put in place any new policies for redemploment and reemployment that may be needed to handle talent surpluses identified later. To the extent the organization planning exercise is anticipated to result in a situation where there will not be jobs for everyone in the new structure, this should be faced up to early and ways planned to provide career continuity for these individuals. To the extent the changes are expected to result in significant retraining and redeployment, these processes need to be developed to be ready for implementation at the end of the planning process.
Increasingly companies are using task forces made of a cross section of high potential managers to do the actual organization replanning. Often reporting to the chief executive, these teams include representatives from the key functions and business groups. They, in turn, are charged with obtaining the best thinking of others inside and outside the company about what changes are required. At this stage they need to be selected and their active commitment to the project obtained. Their actual composition will vary with the issues being examined. One chemical manufacturer, concerned about controlling headquarters overhead costs, put together a group that represented both the providers and consumers of these staff services. A telephone company - more focused on developing a radical rethinking of its organization structure - assembled a team of the "best and brightest" of its middle managers. All were judged to be potential corporate officers - the people who would eventually have their careers shaped by the new organization plan.
3. Get facts
These interviews have several purposes. The can sharpen the company's perceptions of both the goals of the cutback effort and degree there is a shared understanding of the need for these goals. They provide a mechanism to obtain a variety of viewpoints about the appropriate targets for cutbacks - and an early identification of areas or functions that need to be protected or possibly strengthened. If the interviews are well planned and carried out they can also help build support for the changes that need to occur, and can provide valuable information about employee concerns and misunderstandings that can also help shape the ongoing internal communications effort.
Needless to say, the interviews must also be carefully planned and structured if the great deal of information they produce is to be analyzed across interviews in a systematic manner.
One consulting firm supplements its interviews with a written survey to all managers that allows it to identify which aspects of the company's current functioning are most bothersome. While questionnaires such as this are based on perceptions, as opposed to "hard" facts, knowledge of these perceptions is a very useful way to learn about which issues that the "troops' are most ready to tackle.
The necessarily "soft" data provided by these approaches usually needs to be supplemented by quantitative information. The section on "Norms and Ratios" in Chapter Four has covered the pros and cons of using indices and data bases to compare your costs with competitors or others in your industry. At best these are useful, but far from sufficient. They can raise issues, but can also provide false security. And, if they do indicate an area where you are out of line, they may not give you a clue about what to do.
Benchmarking, however, is an increasingly popular technique to allow you to compare key processes across companies. It is a technique that will compare your operation with the best practices, worldwide, not just with frequently misleading industry averages. Benchmarking his also reviewed in Chapter Four.
During the 1980s these traditional approaches to information gathering were supplemented with a number of computer-assisted techniques. Many of these are variations on the Introspect process used at General Electric to do activity cost analysis. Others are aimed at visually depicting communications channels and indicate which individuals in what functions are actually sharing information with each other.
4. Identify opportunities
A linguistic footnote may be in order here. Productivity improvement experts, a generally positive lot, never uncover "problems." When they examine data about a company's operations they discover only "opportunities" for improvement.
These opportunities may be found in a number of areas, such as:
- too many management levels
- too high a cost to manage each dollar of task worker payroll, and
- too high overhead expenditure
The information that has been collected about overhead costs will hopefully make it possible to identify the drivers of each expense. Overhead reduction, while it can be achieved by fiat, tends to be more sustainable when it also changes the factors that cause the cost levels to be at the point they are. A different set of factors exists for each type of overhead. Personnel department costs may be primarily driven by headcount and diversity of the employees and their jobs, for example. Recruiting expenses by turnover and business growth. Accounting and information systems departments by the number, frequency and detail of the reports they are expected to provide.
Information, frequently in the form of collective internal judgments and outside assessments, about the quality and continued necessity of particular staff services or internal products also should be factored in when the costs of providing them are considered. The technique of life cycle analysis, described in Chapter Five, may also be useful at this stage as a way to package the information, and to start making judgments about tradeoffs between dissimilar staff functions.
Another type of information worth giving major attention to is any report of slowness in how the current organization functions. This may involve instances of continually being late to the market with new product introductions, slow responses to customer requests, elongated decision making processes, and the like. The organizational causes of the most critical of these should be determined - excessive management layers, limited approval authorities, multiple staff sign-off requirements, etc. -and these problems then receive priority consideration for resolution.
The chief benefit of the computer-driven, activity cost types of analyses is that they enable you to put your arms around the entire organization, whether 50 employees or 5000. The reports they produce, often covering every position in the organization, can be used to pinpoint problems such as:
- over and under-funded activities
- over and under-spanned managers
- duplication of effort
- high paid people doing low skill work
Some extra analysis tends to be needed with these computer programs to derive their full benefit. Doing so will make it possible to compare costs and personnel requirements across departments ("Why does it require eight people working the equivalent of three full time staff to handle payroll in the Northern Division when one person working only on payroll is able to handle this job in the Western Division?"). It will also pinpoint jobs that are excessively fragmented, and help locate the right work being done in the wrong places.
At the end of this part of the downsizing planning process it should be possible to specify in some detail the potential cost savings that may be realized from making changes in the organization. Other more qualitative benefits should also be apparent. In light of these, it may be necessary to revisit the targets set at the start of the effort. Are some mid-course corrections appropriate? Are there any new goals that should be added?
5. Plan improvements
- principles or norms about effective and efficient ways of organizing,
- insights from experiences, both positive and negative, of other companies,
- an appreciation of ways technology, especially information technology, can help reshape your organization and the jobs within it, and
- realism about what kinds of change will actually work at what pace within your company.
A series of task force meetings, frequently intensive early morning to late at night events, separated by time for reflection and quick gathering of additional information, is often the best vehicle for this part of the work. Out of them can result several alternative organization models, an evaluation of the pros and cons of each, and a recommendation that the task force feels some commitment to. The proposals will consider issues such as reducing layers, broadening managers' spans, identifying work to eliminate or contract out, simplifying work processes to reduce the level of effort needed, redesigning jobs, and leveraging technology.
6. Make it happen
Now gears need to shift as the company organizes itself for implementation. Frequently it is necessary to appoint an implementation manager - a`senior manager whose full time responsibility is the direction and oversight of the movement from point A to B. This individual, a person hopefully well aware that changing people's behavior takes somewhat longer that issuing a new organization chart, may map out a multi-month sequence of events to help manage and communicate what is happening when to support the announced changes in the organization structure..
A key principle to keep in mind at this point is that, in cutback situations, work should be eliminated before workers are. Then people are matched with the redesigned jobs. Finally, any employee surpluses are managed, through a combination of external reemployment, resignation incentives, hiring freezes, and internal redeployment.
This is the point when the ongoing employee communications effort shifts into high gear. And that a multi-year progress monitoring process is launched to ensure that the initial flurry of activity is sustained.
Getting the job done
Advantages of doing all the work internally include the prospect of saving consulting fees, not an insignificant issue when the size of some is starting to resemble capital appropriation requests. At times it is possible to move more quickly when there is no need to screen and select potential advisors. Using outsiders also brings with it the possibility that the resulting study will become too identified with the consultants, and not sufficiently with those whose must carry out its findings.
Against these, and other considerations, are the benefits that might be obtained from outside resources. One of the most significant is their relative immunity from inside biases about the established ways of doing things. The nature of recommendations they help develop should not either advance or retard their careers. They, because many spend most of their professional time working on organization problems, can keep a company from either reinventing the wheel or missing opportunities that may otherwise be hard to discover.
Keep in mind that organization planning consultants are not the only types of potentially helpful outside resources. Outplacement services have been valuable ways many companies have expressed their concern for employees' career continuity after it become apparent there is no longer work available for them. Awareness of the benefits of these services has rapidly grown in the U.S. , and is starting to emerge in Europe and Asia. Increasingly outplacement consultants are offering programs to assist the "survivors" of reorganizations cope with the stress of the change process and the demands of their new jobs. Counseling and employee assistance resources also can be helpful with these problems.
Many firms, even those with well developed public relations and advertising functions, find themselves short of talent to plan and implement effective employee communication programs. As mentioned earlier, this is a critical activity if you want to destroy bureaucracy with killing morale. Outside help may be needed here also.
If a decision is made to use external consultants, the next issue to face is what will be the nature of their role. Unless you are hiring one to work directly as a quasi-employee/turnaround specialist, and give this individual direct management authority, thought needs to be given to the appropriate distance between the consultant and the company.
Would you prefer a coaching relationship with an outsider - one who looks over your shoulder and guides, through his or her advice, the course of your efforts. This may be appropriate if you feel you have the right people and skills internally to plan and do most of the work. For you an outsider can contribute most by adding perspective and serving as a sounding board or "sanity check."
Or is your key need for help gathering facts, providing analyses, and advice about how to apply these. This more active role could involve the consultant joining as a member of your planning team. Possibly a team of consultants will help with interviewing and data analysis. Perhaps they will provide experience with one of the computer-based methods to analyze organization structure.
Another alternative could be the consultant working closely with you as a co-manager of a joint reorganizing project. Here the consultant would share the responsibility for planning the effort and keeping the work on track, as well as providing some of the other forms of assistance.
One last getting started issue is how much of the company to tackle at once. Does either the immediacy of the situation at hand, or your sense that a holistic examination is necessary, dictate looking at the entire company at once? Or is there a single operation or function that is worth singling out as the initial focus of attention - either because it has the most significant problems, or because it has the highest degree of receptivity to trying to operate in a streamlined manner. Or does it seem most appropriate to look first at all administrative activities, waiting to streamline the line functions after overhead has been brought under control.
Moving alone or with consultants, using them as coaches or partners, and starting with the entire company or a segment of it, these are all important considerations. But regardless of which way to get started is chosen, the important issue is to get started.
This book's purpose has been to describe an approach to downsizing that balances the short and the long term. That gives weight to the needs of the business, and the needs of the employees. That considers both the practical and the humane. To these ends it suggests ways to deal with corporate streamlining that differ from the directions many companies have taken. To the extent the approaches described here are attractive, it is important to keep in mind they all require careful advance preparation. The only way to ensure this time is available is to start before you have to.
© Robert M. Tomasko 1987, 1990, 2002