Tough Cuts in a Recession

As the head of a manufacturing business unit explained to me, the problem is not identifying that personnel need to be cut, because with falling orders it is clear that many people are not fully busy, but the difficulty lies in making the cuts in such a way that the business functions most effectively. It is not the situation that anyone's task completely disappears, so responsibilities have to be readjusted and this often does not suit either the production schedule or the skills of the remaining staff.

Actually this situation affects all kinds of companies, not just manufacturing. During the last recession I remember working with a logistics client who had to downsize a network of warehouses and drivers. Their problem was that to save most personnel costs, ideally, they would have preferred to eliminate a warehouse; but then the others would not be optimally placed to pick up the remaining business!

Reshuffling skills is not of course possible to do quickly and the temptation, in any case, is to cut the unskilled workers first so as to retain as much of the skill base as possible, but this is often impossible for two reasons. Firstly, the skilled manager may be unwilling to undertake the less skilled work. There are some terribly dull administrative tasks (who would want to be the administrator making all the copies for the tax office!) and some Moscow managers have worked long and hard to reach a position above such duties. Secondly, this may not have enough impact on total costs. Unskilled staff in Russia neither cost nor save much relative to skilled staff.

Yet somehow these knotty problems have to be resolved and the good news is that in Russia there is generally flexibility in personnel terms, which do not always exist in other countries. If I contrast downsizing similar sized operations in Europe during the recession of the 1980s and in Russia during the 1998 recession, the managements' task was much easier in Russia. And now in this downturn I see the same staff flexibility and willingness to consider creative solutions here whereas in other countries it is still often a case of all or nothing -- each job continues as before or it ends.

There is no science behind more creative approaches. It includes anything and everything you can think of:

Part time work for groups of people, flexi-work according to need

Unpaid holidays and temporary closures

4 or 3 day working weeks

Bonus or salary reductions in place of staff cuts

Reshuffling tasks on a temporary basis, sharing and rotating the chores

Eliminating entire groups of activities and teams in place of a little bit from everyone.

Sometimes potential solutions are exactly opposite to each other: cutting staff or salaries, cutting 20 percent from each group or 100 percent of one group. The right solution for any business always depends on your specific company situation. For example in one group of travel agents: In one region they decided to reduce full-time staff while in another they chose to put everyone on part time work. Both worked better than the alternative in their regions because each specific manager was able to get the best from her people.

Tough times, tough choices, but it has to be done so best be done in the best way possible.