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Saturday, March 21, 2009

Who bears responsibility for layoffs?

In these less-than-buoyant economic times, many technology companies are struggling to remain profitable. Some are struggling for their lives. When earnings turn negative, talk turns to cost-cutting. And since the single biggest cost of running a company is people (or should I say, the salaries, benefits, and miscellaneous costs associated with employees), inevitably the meat cleaver comes out. The result: Headcount reduction. Downsizing. Rightsizing. "Smartsizing." Redeployment. Restructuring. Reduction in force (RIF). Force shaping.

In non-Dilbertian terms: Layoffs.

Paradoxically, it costs a lot of money to let people go (in the U.S., at least). Time-Warner recently announced it would cut 1200 jobs. According to the company, the RIF will cost an estimated $100 million.

The true costs of a RIF to a company go well beyond the termination pay and other costs associated with getting rid of someone. The real costs include:
  • Brand equity costs: How much does it hurt a company's reputation as a "good place to work" when it announces layoffs?

  • Morale costs: Employees who survive the cut are often demoralized and fearful (with good reason).

  • Rehiring costs: Eventually, when (and if) things turn around, some positions will need tobe refilled.

  • Sales-disruption costs: Deals may fail to close, or a company may be eliminated from consideration during a procurement effort, if the company in question is perceived as "in trouble" due to a painful cost-cutting exercise involving layoffs. These days, procurement teams are justifiably "skittish." They want to avoid going with a company that might be perceived as a risky choice.
But where does the responsibility lie for the poor financial performance that gave rise to a RIF in the first place? In the current economic environment, it's easy to put the blame on the recession itself. And certainly, there's some truth in that. Demand is down. Credit is tight. Layoffs are, in fact, inevitable during economic downturns of the sort we're in now. But what if a company was already performing poorly before the recession? What if it has been in a negative-earnings posture for two, three, four years running?

What if you're Sun? Or Novell? Or Vignette?

The answer is pretty simple. Responsibility for a company performance ultimately rests with executive leadership: the folks at the top.

A company's success is a team effort, obviously. No one person causes a company to succeed or fail. But strategy -- and its execution -- begin at the top. It all cascades down from there. This is why the folks with CxO after their names are paid the Big Bucks. Isn't it?

Therefore, when I see a company like Sun (which is overflowing with good technology and good people) do poorly over a protracted period of time -- going back before the current recession -- I can't help but wonder why folks like Jonathan Schwartz get to keep their jobs.

Mind you, I have nothing against Schwartz. I know someone who has worked closely with him, and by all accounts he's a really nice guy. But guess what? He has failed at his job.

The same can be said for Ron Hovsepian at Novell. I know him to be a heck of a nice guy. He's smart, he's dynamic, and his heart is in the right place. But he, too, has failed miserably at his job.

The list is long.

I don't know about you, but I think people who fail in their jobs (no matter how smart they are or how personable or how great a job they did in prior lives at other companies) need to be put on probation, then ultimately (as conditions warrant) replaced. This is how it works at the bottom. This is how it works at the middle. It needs to work that way at the top.

Sure, it happens. But it's not happening fast enough.

2 comments:

  1. Ironically, you know who punishes failures that way - Hollywood.

    I was watching an interview with Jon Favreau after Iron Man came out and he was talking about "Director Purgatory". Since directors manage the production cost through project management as well as the quality of the final product, they have to consistently put out successful (or at least profitable) films. Favreau said that directors can usually create one big flop, then one small flog, and then it's off to purgatory where they usually can't work for any major studio for a long time.

    In comparison, CEOs in other industries can somehow re-release Ishtar over and over yet still rake in big bucks.

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  2. I guess it costs more money to fire people @ the top. Secrets costs money.
    People are the bottom are quickly replaceable and besides you can push the rest a bit more to compensate.
    Unfortunately...

    ReplyDelete

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