The Drawbacks Of Downsizing

Larry Price
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Wednesday - August 13, 2008
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Hawaii companies are cutting costs, mostly laying off or furloughing employees, trying to adjust revenue, cost and profits to suit demanding shareholders. The latest “third-party influence” on our local economy is the cost of energy.

There’s nothing new about economies going through business cycles. Half of the Wall Street players are betting the economy is going to improve, while the other half is betting it’s going to go lower.

Consequently, players who are buying stock expect the financial situation to improve and those selling think the market will sink lower. They use all kinds of excuses to either justify raising their rates or lay off employees. It’s all part of the big financial game.

When the going get tough, most companies, though not all, look at a variety of downsizing tactics. When that happens, people begin to question the leaders in the business and government. Downsizing is not wrong, but there is cause to go slowly. After all, have you ever heard of a company reducing to greatness?

The decision to downsize is easy. It’s a reaction to a crisis situation. It’s illogical to assume that a company can never make a mistake when it cuts labor costs. The simple truth is companies can and do. The reason for that is there is no long-term damage when you downsize, only a short-term gain. A popular assumption is that people who are let go are the only ones affected by downsizing. We should all be convinced by now that is absolutely incorrect.

Downsizing is a classic example of linear thinking. Simply put, you cut costs to gain financial performance. It would be nice if some of our media soothsayers would think in terms of “optimization,” instead of downsizing. It just sounds better, doesn’t it? Optimizing the work force to revitalize the company. Optimization is not a reaction to a crisis, rather it is initiating a solution. It looks at the root cause rather than the symptoms. How long have we known that when you put all your eggs in one basket (tourism), you’d better do everything you can to protect that basket?

All of this rush to downsize from one end of the Hawaiian Islands to the other presents some tough questions that need to be asked by business leaders. Like, what is the rationale used for downsizing? Does the process include feedback and lessons learned from the past?

Let’s face it. Laying off seasoned employees by e-mail, while their contract negotiations are in progress, is a poor way to manage loyal employees. How do you resolve the hurt and repair relationships? Is it fair to expect the government to send in human resources swat teams to fix the damage? Finally, how do you strategically cut positions in a way to make employees think it was all done in a fair way?

The state of Hawaii has been through too many of these economic slowdowns to not have developed some Golden Rules for successful implementation when it is absolutely unavoidable. From what we have witnessed in just the last six months from Aloha Airlines to Molokai Ranch to Sea Life Park, to name a few, there are at least three things that the company’s leaders must exhibit during these economic times: A high performance team approach, a good communication plan, and effective coordination with everyone involved.

It seems pretty obvious our local companies need a process, and they need to follow that process to ensure complete management alignment. If there is need for a change in management leadership, it should be part of the process so everyone on the inside and related to the company can spoon-feed authentic communication to those who must leave and for those who stay.

We all know downsizing is complex, disruptive, difficult and the stakes are very high. Hopefully, we’ve seen the last of our business leaders employing the wrong assumptions about doing business in Hawaii, like upsizing is easy to do later on, that cost-cutting will immediately improve the corporate numbers.

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