Managing in a downturn: Mistakes CEOs make- Headcount

Lets start with one of the most common actions taken by CEOs when faced with a downturn or with unfavourable market conditions or with a need to simply cut costs: slashing headcount.

It is probably one of the easiest measures to take, with a considerable impact on the bottomline (apart from slashing marketing budgets, which I will dwell on shortly). Alas, it is also a step that can have far reaching consequences, if not managed properly.

Let me explain what I mean. There are two methodologies that can be used to reduce headcount. The first is by examining processes and functions to determine which ones have excess headcount, thereby identifying redundancies which can be eliminated. So far, so good.

The danger arises when the decision to eliminate jobs is taken on the basis of numbers rather than talent or skills. If a certain function is determined to be redundant, the easy decision is to remove that function or a position/s within the function, thereby eliminating one or several jobs. The impact on the bottomline is immediate, significant and measurable.

But the gain may be short term. What if some of the best and brightest talent of the the organisation is lost in this process? Diehard supporters of this method of headcount reduction will argue that if the function is not required, neither is the talent.

Quite true. But that is true only in the short term. The mid term and long term are more difficult to predict both, from a business environment as well as from a resource requirement point of view. By getting rid of talent in the short term, is it not possible that the organisation ends up compromising its opportunities in the long term, when that talent may actually help in boosting the bottomline?

This kind of short term thinking with a disregard for consequences that are seen to have a minimal probability of occurring is one of the key reasons for the financial crisis that has dragged down global economic growth over the last few months. And it is this thinking that can put brakes on an organisation's growth as well.

Let's not forget; "talent" is an anagram of "latent". Not all talent shines all the time. Talent and skills are need and opportunity based. They need to be employed when the time is right for best results.

So, what is the option?

The second method of reducing headcount. Not by numbers, but by talent management and assessment. It is relatively easy, given the tools available to HR managers today, to identify talent that needs to be retained, as well as tag employees whose contribution to the organisation is either sub optimal or minimal. Organisations need to have in place processes that continually identify, tabulate and rank employees on the basis of their positive contributions. If this process is followed meticulously and consistently, then, when the organisation needs to reduce headcount, it has a ready reckoner which enables it to quickly identify employees at the bottom of the barrel. By making these employees redundant, it is obvious that the performance of the organisation will not be affected either way; however, their elimination will have a significant impact on the bottomline.

And, it will ensure that the right talent is retained for the long term, to exploit the relevant opportunities for growth, as and when they arise. More on talent management and retention in a later blog.