Five smart ways to handle workforce reductions

Jason Hiner: Reducing workforce costs is often necessary to keep companies solvent during difficult times -- but if it's not handled right, it can make an already difficult situation even worse.

I'm Jason Hiner, and today on Sanity Savers for IT Executives, I'll share five ideas that will help you reduce your workforce costs, while minimizing the negative impact on IT operations and on the business.

#1. Cut spending before headcount

Workforce reductions tend to be difficult and expensive, and they often do long-term damage to a company's culture, knowledge base, and morale. They are best viewed as the last resort for reducing costs, not the first.

Before you start downsizing your core productive workforce, consider making temporary concessions -- like reducing time-off accrual, making salary cuts, and shortening work schedules -- instead of undergoing layoffs.

Make it clear to your staff that the cuts are being made so the company can avoid having to eliminate staff. But don't promise that workforce reductions will be unnecessary.

#2. Upgrade and optimize the workforce

Work with your managers to prioritize jobs and workgroups based on how they affect revenue. Rank them based on the value they provide to the company, the cost required to maintain them, and the ability to maintain these functions with fewer staff. Explore shutting down entire programs that aren't critical to short-term revenue.

After you determine which areas have the biggest impact on driving company revenue and controlling costs, review the capabilities of your employees to determine whether they're correctly deployed to support the critical elements of your business. You may find it makes sense to actually increase staffing levels for more profitable teams while drastically decreasing headcount in others.

#3. Avoid undercutting

The goal during downsizing is to get through the reductions as rapidly as possible and re-establish the company on stable financial footing. This is not the time to have employees distracted from goals by worrying that more cuts are on the way.

Companies often base initial headcount reductions on overly optimistic market predictions -- and then they have to make additional rounds of reductions. It's better to use a conservative or even pessimistic forecast so you can cut once deeply and move on, instead of having to make multiple inadequate reductions that slowly drain your company morale and lead to a "death by a thousand cuts."

#4. Make reduction decisions on consistent and transparent criteria

Decisions about which employees to let go should be based on data and processes that are at least as rigorous as the methods used to hire your employees. Workforce cuts should start with a thorough review of your current operations and future business direction. You can't begin cutting until you clearly understand how each employee s skills and expertise will support the company's future strategy.

Once you determine the number and type of employees needed to support the business going forward, you should begin making workforce reductions based on three criteria:

• Employee capabilities and skills
• Employee performance and productivity
• And employee cost

Use structured assessment techniques to rank and categorize employees according to these criteria and take advantage of tools designed to ensure fair and accurate evaluation, such as nine box grids and balanced scorecards. And, of course, make sure you make it about specific job positions and not personalities.

#5. Communicate the new vision

The biggest risk to workforce productivity after a headcount reduction is not fear or lowered morale, it's uncertainty. Be clear about why decisions were made to reduce the workforce, what actions were taken before making these decisions, how the decisions were carried out, and what lies ahead.

Encourage employees to voice concerns and suggestions about the company's financial situation and strategic direction -- and then leverage their ideas. The more you trust employees with the full picture of the company's situation, the more they will feel empowered to help the company meet these challenges.

Business downturns are inevitable. Most companies that have been around for 20 years or more have had to make workforce reductions multiple times as the global economy goes through its cyclical declines.

At the same time, try to learn from your experience so that you can weather future downturns without having to trim your staff. Also take note of the mistakes you made this time around so that if future workforce reductions are necessary, you can handle them more effectively and minimize their impact on both workers and the business.

I'm Jason Hiner and this has been an episode of Sanity Savers for IT Executives. For more, go to sanity.techrepublic.com. And if you have questions or your own sanity savings tips, e-mail them to us at sanity@techrepublic.com. For those of you on Twitter, you can find me at twitter.com/jasonhiner. Thanks for watching. See you next time.