The roller coaster of downsizing.

Many consulting firms are in the process of downsizing, or looking for alternatives. It can be an emotional roller coaster for staff who sense impending fear, uncertainty and insecurity about their employment. Here is what is driving the change and what you can do to ease the nausea.

As consulting or professional services firms begin to experience the effects of a slower than usual market demand for services, crafting a new balance in capacity-building is needed to keep headed "True North" during the gathering storm. As a consequence, professional services firms are exploring creative alternative approaches to keep consultants actively engaged in cross-competency and internal projects in anticipation of renewed market demand for their services in the future.

With growth rates hitting the 20% to 30% range for most consulting companies a year ago, thoughts of downsizing were a distant reality. A recent research study conducted by the Ransford Group indicates, based on 300 consulting companies:

* 36.5% Are considering downsizing

* 22% Have downsized a portion of their staff

* 45.5% Are exploring alternatives an other non-traditional methods of maintaining staff capacity

* 10% Are re-deploying staff to other service lines

* 25% Are not considering downsizing but have experienced a slowdown in the ERP, SAP lines of business

Trends indicate that while consulting firms are re-deploying staff into new growth areas like e-commerce and customer relationship management, alternative approaches are being explored. Understanding these alternatives and the resulting impacts will be a necessary exercise to maintain realistic capacity-building goals while keeping a weary eye on staff morale and job satisfaction during the transition.

What is the driving the change? Call it restructuring, rightsizing, redundancy or downsizing, the meaning is clear, demand for services is less than anticipated with capacity levels at an all time high. And when capacity is greater than the pipeline, revenue, margins and maintaining consultant skills at optimal levels becomes a challenge.

The ERP, SAP and BAAN marketplace is a clear case in point. As reported in USA Today, data from Forrester Research indicates the US market for ERP software is expected to keep growing, but the growth will slow through the year 2002.

SAP as well, as reported by the Wall Street Journal, (June 28, 1999), has fallen behind in developing new product services leaving some flagship customers such as Nike, Siemens AG and Bristol Meyers Squibb, defecting to the competition.

Baans' market as well, which boomed in the mid-90s came to an abrupt halt last year as companies started spending money on fixing their year 2000 problems instead.

These developments in the packaged solution market are a good example of how a "hot" consulting service area can "cool" leaving many skilled ERP and SAP consultants on the bench or seeking ways to transfer their skills to new service lines. As the year 2000 quickly hits the radar screen, consulting clients are becoming more risk adverse to committing to multi-million dollar systems engagements until the impacts are clearly understood.

Five years ago, leading consulting firms paid staff 25% bonuses for joining their SAP line of business organization for a two-year commitment to work exclusively with SAP clients. Others created crash courses to certify consultants in a mad dash to staff huge projects on a global basis. Some helped create the now exploding talent pool for technology independent contractors who were willing to sell their expertise to the highest bidder.

Rates for highly qualified SAP and ERP consultants soared to an all time high of $3,000 per day. Clients were not exempt as recruiters quickly targeted staff that had experience in these business systems and offered twice the current salary with huge bonuses. It was a difficult offer to turn down.

In the end, those that stayed with their current company did so because they were not willing to divest years of company loyalty for what many saw as the current fad. One wonders what happened to those who did leave. Have they become the independent consultants, or have they too changed gears and become the e-commerce experts of tomorrow?

As demand for these highly trained consultants decreased, professional services firms began to see an increased number of highly paid and skilled professionals not chargeable and staffed, a deadly combination for an enterprise that depends on the value of its people for high billing work with clients.

How best can the professional service firm prepare for the dreaded time when downsizing becomes necessary, and what alternatives can it pursue to stay healthy and in balance?

1 EXPLORING ALTERNATIVES TO DOWNSIZING

Downsizing can be an emotional roller coaster. Pressures to stay productive quickly come to the forefront of conversations in off-site events. What are the best ways to handle this change and what are firms doing to create a win-win situation? The Ransford study shows companies are:

Instituting a hiring freeze                     85.5%

Restricting overtime                              62%

Retaining and redeploying staff                   90%

Converting to part-time                          5.5%

Job sharing                                       20%

Creating independent contractor
pool                                            42.5%

Different approaches are being tried, some with more success than others. However, six principles seem to be the key to moving down the right path at the right time.

Institute a hiring freeze Although campus recruiting will still be a primary objective to build capacity for the future, freezing experienced hires is one of the most effective means to keep costs in line and to maintain your current inventory of skills.

Restrict overtime Justifying overtime on only the most critical of projects can provide the focus that is needed to remind staff that the cost of human capital has an impact on the bottom-line. Some consulting firms place non-chargeable consultants on an expenses-only basis within projects rather than have an existing project staff put in overtime. In many circumstances, overtime is not charged to the client but is billed to the organization as a development expenditure. This also provides the consultant with a client experience and provides the opportunity to be fully billable in the engagement.

Retain and re-deploy staff Moving consultants to other service lines is a good alternative to balance out the peaks and valleys of client and industry demand. This option accomplishes cross training as well as increased flexibility to meet diverse client needs and expectations. The recent migration of many SAP consultants to e-commerce and customer relationship management is a good example of how this transition can work with minimum disruption to the organization.

Convert to part-time Alternative work schedules allow staff to meet work-life balance issues, and at the same time, contribute to the overall depth and capacity of the firm. Many consultants would be willing to work part-time if greater benefits and support were part of the overall strategy. This approach, however, does require a greater focus on team building as the hand-offs to other part-time employees is critical in ensuring integration and a smooth transition with client relationships.

Job sharing Like converting to part-time, job-sharing can be a viable model especially for administrative support staff, marketing, practice management, human resources and finance. These areas lend themselves well to clear lines of reporting and responsibility sharing.

Create an independent contractor pool Like a management services contract, former full-time consultants' contracts for specific projects operated under the firm name. They often work on an exclusive basis for the organization. Many software companies are creating new organizations within their existing structures to operate this type of model. Issues such as retention, pricing, margin and consistent quality still remain an organizational problem as they snuggle with how best to organize and execute their services to meet client demand with a contractor labor force.

2 COMMUNICATE THE BUSINESS CASE FOR DOWNSIZING AND PRESENT A VISION FOR THE FUTURE

It is important to communicate why downsizing is necessary. Factual financial data and the steps that will be taken to avoid the situation in the future are important pieces of information to share. Sometimes, it's equally important to share what will change and what will not change in the future. People desire stability and having control over the future. A little information goes a long way in restoring a sense of security and well being.

The survivors of a downsizing experience will also be interested in understanding how the future will be different from today. Nobody wants to lose their "A" player out of fear that he or she will be next in a wave of layoffs. In this regard, several of the largest consulting organizations are placing extra resources in building up their home office activities. Increased community activities, partner parties, mentoring events and small group discussion meetings are becoming the norm. These efforts have helped reduce the rumor mill, decreased stress and kept staff more optimistic about firm activities in staffing and communications.

Also, isolation and pessimism have decreased as the leadership of the firm has made themselves more available to consultants to answer questions related to staffing, capacity, client pipeline and the future for those who are on the bench.

3 INVOLVE CONSULTANTS IN CROSS-SECTIONAL TASK TEAMS TO DEVELOP NEW HUMAN ASSET PROGRAMS

When employees see the full face of the organization during good and bad times, they feel they can make an impact. Involving staff in reviewing communications, assisting creating a change plan and participation in selecting an out-placement firm are some of the tactics consulting firms have utilized to keep employees informed and engaged. Companies have also asked task team members to help in:

* Creating a transition process;

* Gathering ideas about how to maximize resource deployment;

* Internal utilization and feedback to the partner leadership group on retention, morale and communications issues.

4 PLAN THE LOGISTICS TO CREATE A WIN-WIN OUTCOME

Planning for a downsizing effort requires many due diligence factors for the process to work smoothly. In organizations that utilize a matrix management model, counseling partners, managers and the human resources organization are educated on downsizing best practices in order to create awareness of legal and ethical issues. Several steps can be taken to ensure a smooth transition process. These include:

* Create a voluntary resignation period with appropriate incentives;

* Train staff on how to perform terminations that are consistent with firm policy;

* Identify early which people need special attention due to personal circumstances;

* Allow a job-search period with full-pay and benefits for up to 12 weeks;

* Identify security issues that need to be addressed when people leave the firm;

* Map out a press strategy. Clients who read about your downsizing in Consulting News or the Wall Sweet Journal will wonder about your delivery capacity;

* Review the criteria used for downsizing and ensure it will withstand legal challenges;

* Assess your internal process with previous company downsizing efforts. If you have a policy and you don't follow it, you tip the risk scales against you;

* Notify search firms that you will be downsizing and explore with them potential placements for those affected. Creating good will with those who leave helps your market image and future recruitment efforts. Word gets around about how a firm treats its people;

* Retain an outside firm to present a best practices briefing session for senior management on what other companies have done to make the process work successfully.

5 FACILITATE A LEADERSHIP STRATEGY DURING DOWNSIZING

Leading from the heart is a noble endeavor. Taking the right leadership steps is equally important. Create leadership activities that communicate to the organization the bigger picture before, during and after downsizing. Leadership involvement in reviewing adverse actions, conducting question and answer sessions for staff, acknowledging how difficult and painful the process is, and how the organization will move forward in the future is important to demonstrate a go-forward, strong sponsorship process and plan. Those who survive the downsizing will want to know that decisions were made fairly, and with the best interests of the total organization in mind.

6 ALIGN THE BODY AND SOUL OF THE ORGANIZATION

Reviewing organizational alignment issues after downsizing allows consulting organizations to ensure future flexibility and agility - two important organizational dimensions necessary for continued health. Creating a process for assessing alignment factors helps a firm re-calibrate its overall structure, its processes and its ability to execute. (See Future alignment options)

Creating an ounce of prevention Traditional consulting firms have always had to address swings in their business. Preparing for effectively managing this change requires a combination of planning your human asset management plan with your eyes looking over the horizon while looking over your shoulder in order not to be hit by unforeseen risk areas. Take this downsizing quick assessment to determine how your firm is preparing for its human asset management future. (Circle your answers.)

* My firm has explored "best practices" alternatives to implement prior to downsizing.

True False

* We have gathered market intelligence on the trends for professional services firms regarding human asset management, capacity building, retention and release.

True False

* We utilize morale stabilization and vision validation process in addressing survivor issues after downsizing.

True False

* Our human asset management strategy includes a consulting skills inventory, future competency needs and a three-year forecast.

True False

* We have developed alternative plans to re-train and re-deploy highly skilled subject matter experts in SAP, ERP, PEOPLE-SOFT areas into other service lines.

True False

* If downsizing becomes necessary, we have a market-ready client perceptions plan in place.

True False

* Over the last six months we have conducted an assessment of our human management asset management program to evaluate potential risk and opportunity areas.

True False

Ideally, you answered "True" to all of the questions addressing the elements that are needed to create an "ounce of prevention" in your human asset management program. For those who wonder, which way the wind will blow, and how best to plan for the gathering storm over the horizon, keep in mind what Jack Welch said: "There are two types of companies in America. Those that are speeding toward a cliff and know it and those that are speeding toward a cliff."

Don't be a company who is speeding toward a cliff without the knowledge and brakes to stop. Keep your company in good shape, aligned and heading true North.

Downsizing alternatives

Strategy and specialty firms are exploring alternative and non traditional methods of maintaining capacity. IT companies seem to be impacted the greatest, and are considering downsizing due to a slow down in package solution business.

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Downsizing figures

Consulting companies from large, and mid-size to small and boutique size firms indicate a diverse approach to understanding, managing and exploring alternatives to downsizing.

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Future alignment options

Review these 10 organizational factors to determine if it's time to adjust and align the organizational vertebrae.

Current organization              Future alignment options

Organizational mechanics          Functional to process orientation
Depth of organizational           Hierarchy to more networked
structure
Decision-making philosophy        Individual to team-based
Business skills and knowledge     Transition from balanced to
                                  leveraged
Career progression                Progress to adaptive and
                                  multi-skilling
Rewards and incentives            Individual to individual and team
                                  based
Culture and behavior              Aligned with strategy and
                                  reinforced
Business processes                Highly standardized across markets
Client market image               Validate client perceptions and
                                  shifts
Commitment to vision              Cascading ownership at all levels