Workforce reduction is not an operating strategy…Regrettably, tough economic times are often the precursor for ushering in massive rounds of corporate downsizing, rightsizing, layoffs, corporate restructurings and the like. Reducing headcount in an economic downturn is almost a Pavlovian response for many executives. It’s as if workforce reduction is priority number one in some corporate operating rule book. Here’s a news flash…in the 212 pages of my book “Leadership Matters…The CEO Survival Manual,” nowhere do I espouse an unplanned mass reduction in labor as a brilliant business move.
Let me state this as simply as I can…a business should always be rightsized, or better yet, it should always be optimized. If you find yourself carrying too many employees such that you have to eliminate positions to manage cash flow, then your operating plan was flawed to begin with. In a keynote address last year I made my point very clear when I stated: “Managing revenue risk through workforce reduction is simply a sign of poor executive leadership. If an employee is a valued asset one day, and somehow expendable the next day, then I question how valuable they were to begin with.”
If you can layoff large groups of employees then I question your need for them in the first place. Irrational exuberance and optimism on the part of executive leadership is not viable justification to go on a hiring binge. The thought that people are simply expendable resources constitutes flawed business logic. Good hires should be sustainable hires.
The bottom line is that as a CEO you never want to be too far ahead, nor too far behind the hiring curve. So the obvious question is this: how do you know if the size of your workforce is optimized? You rightsize all the time…My CEO clients have their CXOs justify headcount on a regular basis…They keep them on a short leash to avoid shortfalls or bulges in workforce size. I can already hear the naysayers complaining about not having time for this level of employee evaluation. Oddly enough, these are the same executives that find themselves making massive unplanned cuts in head count because they weren’t proactive in their approach to begin with.
There are any number of financial and non-financial metrics that can be assessed to evaluate whether or not the depth and breadth of your workforce is optimized. Each organization is different, and its not even so important which metrics are used, just that some logical standard is put in place. Whether it be something as simple as revenue per employee, or a complex formulaic approach to contribution margin, measurement needs to occur much more frequently than is the case in most corporations today.
The moral of the story is this…Any idiot can grow a workforce or shrink a workforce, but it takes great executive leadership to optimize a workforce.