Four Mistakes Leaders Make When Downsizing

Avoid these management traps, and maybe your company can emerge from the recession in stronger shape

BusinessWeek

By Keith McFarland

...If you're in a market segment that won't be hit too hard, you're lucky. If not, though, recessionary pressure need not spell disaster. If your company has been prudent in its use of leverage, you might even pick up a few points of market share as your competitors batten down the hatches. Just be careful to avoid the following four common mistakes leaders make when scaling back.

1. They kid themselves. ...[Leaders] tend initially to kid themselves in underestimating the scope of a downturn—and as a result, they find themselves chasing a falling revenue curve and risking death by 1,000 cuts.

... Instead, get your core team together and take a brutally honest look at how bad things are likely to get for your business. Then size your business to make a profit at the level of revenue you think is most likely. ...

2. They make across-the-board cuts. A common approach in a downturn is to declare reactive, across-the-board reductions—which usually just make things worse. ...

...[It] is vital that a company know exactly how much money it makes by customer group and by product. ... Identify the 20% of the activities that produce 80% of the results—and protect them at all costs.

3. They fail to demonstrate generosity and concern. ...Show courage and commitment—meet with people you have to lay off, help them transition, commit to show a generosity of spirit. Survivors in the organization will be watching you closely ... If they see even a hint of dispassion, they are likely to lose faith in you and begin to look for another job.

4. They clam up. ...As soon as you determine a course of action, communicate fully and often to the troops (BusinessWeek.com, 10/21/08). Send the signal that you fully grasp the seriousness of the situation, but that you also have a plan for helping the company survive and even flourish.

If you avoid the traps described above, you may even find that your business will emerge from the recession stronger than ever. ...

Keith McFarland is author of the #1 Wall Street Journal bestseller The Breakthrough Company: How Everyday Companies Become Extraordinary Performers. He is founder of McFarland Strategy Partners.