April 28, 2016

Do you have to downsize in a downturn?

Posted By: Fiona

One of the first things you do in an economic downturn is downsize, isn’t it?

Not if you’re smart, compassionate or both

Western Australia’s city of Perth has been in the economic doldrums lately, which has made this topic…well…topical. Everywhere you go you meet people who’ve been or are about to be laid off, have had their colleagues laid off, or have been laying people off. They’re all unhappy. It’s having a negative flow-on effect on the wider community through their families, friends and local businesses, plus on those left in the downsized organisations. And much of it is unnecessary.

While current business lore says one of the first things you should do in a downturn is reduce your workforce, smart and compassionate businesses are doing things differently. And it’s paying off for them, big time. Here are just three examples of many:

Barry-Wehmiller

In Chapman and Sisodia’s new book, “Everybody Matters: the Extraordinary Power of Caring for Your People Like Family” they share the story of how Barry-Wehmiller came through the Global Financial Crisis stronger than ever…through caring for its people.

Barry-Wehmiller has adopted 80 companies into its family, employs 11,000 team members, and is a $2.4 billion global supplier of manufacturing technology and solutions serving a diverse platform of industries. It’s exposed to the same economic conditions as the rest of us. How does it deal with tough conditions?

When the GFC hit hard in 2009 Barry-Wehmiller had for several years been building a culture founded on its Guiding Principles of Leadership, which begin with the statement “We measure our success by the way we touch the lives of others”. That meant the usual response to a shrinking order-book and impending financial default, laying off staff, was simply unacceptable. It had been done previously within the business but with leaders fully embracing care for their people the devastation of layoffs was “almost too painful to contemplate”. So they got creative and sought ways for everyone to share a little pain so no one was hurt too badly. For example they gave everyone a month off without pay at a time of their choosing (and people could trade if they wanted more or less time off). They suspended executive bonuses and the 401(k) (retirement fund) match, reduced travel expenses, and offered a generous Voluntary Transition Opportunity Program for associates close to retirement. Bob Chapman, the CEO, cut his own salary from over $800k to $10k. Every part of the business shared the burden, even those divisions which weren’t badly affected.

They planned their communications carefully, using video rather than email so people could see and hear Bob’s sincere care and concern. And they did not compromise their commitment to education and continuous improvement programs. Instead they encouraged their people to use idle time to take internal classes, used the production schedule gaps to undertake major Lean improvements, and continued recognising one another’s successes without spending a lot of money.

This caring approach replaced team members’ fear with feelings of safety, gratitude and togetherness. Morale rose dramatically, so much so the business rebounded after nine months, well ahead of the broader economy. Indeed their fiscal 2010 was a record year for earnings. Consistent with their vision they used this as an opportunity to reinstate the 401 (k) funds, restoring their people’s retirement savings to where they would have been without the crisis.

Outcomes? Happy people, resilient company, healthier communities.

SAS Institute

“Firms of Endearment: How World-Class Companies Profit from Passion and Purpose” by Sisodia, Wolfe and Sheth cites many examples of caring and successful businesses. One such is SAS Institute, an analytics software company based in North Carolina. Sisodia et al say:

“SAS has enjoyed 37 consecutive years of record revenues and earning, and generated $2.8 billion in revenue in 2012. It employs about 13,000 people worldwide. Only two percent of its employees voluntarily leave in a given year (compared to 22 percent on average in its industry). And get this: Last year it had 65,040 applications for 433 jobs – that’s 150 applicants per job! Forty-four percent of its employees are women, who make up 32 percent of executive and senior management positions.

The company was cofounded in 1976 by Dr. Jim Goodnight, a faculty member at North Carolina State University. He has now come to be recognised as one of the great business leaders in the world. His leadership philosophy is really quite simple: It is all about the people. If you can focus on creating a great environment for employees to feel engaged, connected, respected, challenged, and rewarded, they will do extraordinary things for customers; that in turn will lead to sustained business success…

…When the great recession of 2008 started, sales of the company’s products slowed dramatically. The analytic software industry was unusually affected, and many companies initiated mass layoffs. At SAS, Jim Goodnight announced over a global webcast to employees in January 2009 that none of the 13,000 employees would lose their jobs. He asked them to be careful with their spending and to look for ways to help the firm get through the tough times. As he explained, “By making it very clear that no one was going to be laid off, suddenly we cut out huge amounts of chatter, concern, and worry – and people got back to work.” Astonishingly, SAS generated record profits that year even though it was fully prepared to absorb a loss it it had to for the first time in 33 years.”

acQuire Technology Solutions

I’m fortunate to have first-hand access to a leading thinker (and more importantly, doer) in this area, Bill Withers. Formerly Managing Director of acQuire, Bill now leads its sister company ADAPT by Design, for which I’m a Practitioner.

acQuire works in a notoriously cyclical space. It provides Geoscientific Information Management for mining companies – technology, processes and people to help customers manage their drillhole and geochem data across their enterprises. Mining is known for its massive swings in activity yet in its 20 years of operation acQuire has never let someone go for financial reasons, and it currently employs around 120 people around the globe. I interviewed Bill recently to explore how acQuire has survived the downturns so well.

Bill recognises to maximise productivity you need to maximise employees’ intrinsic motivation. He’s spent many years exploring and experimenting to find ways to ensure this is done, embedding successful practices so they sustain over time. In this intrinsic-motivation paradigm you focus on the long-term balance sheet, recognising sometimes it may be necessary to take a short-term financial hit in order to maintain intrinsic motivation and hence long-term financial performance. Letting people go for financial reasons damages intrinsic motivation as it creates a culture of fear, which in turn narrows people’s thinking, stifles creativity and reduces productivity. However this intrinsic-motivation-based approach means recognising the value of an intangible, something we often struggle with in business.

So what kind of initiatives did acQuire put in place to avoid layoffs?

Establish a Future Fund

One of the main initiatives was to establish a Future Fund. That means in the good times you distribute your profit to serve all your stakeholders through boom and bust, storing some away for a rainy day. acQuire’s Future Fund has not yet been used, but it’s great to know it’s there if and when it’s needed.

Introduce employee ownership

acQuire is employee owned, meaning its only access to capital is either profit or bank debt. It chooses to run without debt to reduce financial exposure, and as employee-owners everyone shares in the ups and downs.

Pay sustainable salaries

Most businesses believe in order to attract high-quality people their salaries must be competitive in the market of the day. Hence businesses offer high salaries during boom times but can’t sustain them in the busts. acQuire challenges this paradigm. Rather than competing with boom-time salaries it pays reasonable and sustainable wages, and invests in understanding and fulfilling other aspects of people’s motivations. In Bill’s experience a maximum of 20% of motivation is salary, so by being more competitive in other areas and sustaining that over time the business’s people remain motivated…and employed. Employees who’ve accepted these lower salaries during the boom times and retained their jobs in the busts may earn more over a 10 year period than those who take high-salary roles elsewhere during the boom then are unemployed in the downturns. It’s also a lot less stressful for them and their families, and the continuity of employment allows them to build up a body of work of which they can be proud.

What does Bill see as the benefits of this approach? In his words: “As a leader you know you’ve created opportunities for others. You’ve helped to build a better society by mentoring others. You feel good about yourself and your work. And your business is more profitable in the long term.” In fact Bill believes so much in what he’s built, of which this is only one part, he’s launched ADAPT by Design to help others repeat it…in their own ways, in their own businesses, in their own industries.

What’s the bottom line?

Your people are your business. When you care for them through rain, hail or shine they do the same for the business. And everybody wins.

Like help building your business to survive downturns without downsizing? Reach out

Posted By: Fiona
Posted In: Business, Community, Conscious, Creativity, Customer retention, downsize, downturn, Employee engagement, Firms of Endearment, layoff, Leadership, Mindfulness, Motivation, Purpose, Values

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