Who re-moved my cheese? Responding to staff reductions.

A few years ago, noted author Dr. Spencer Johnson wrote a popular book entitled Who Moved My Cheese?[1] For those who have not read this book (and I heartily recommend it if you can carve out an hour of your time), it depicts the story of four imaginary characters and how each deals with change.

The two mice (Sniff and Scurry) and the two little people (Hem and Haw) represent the simple and complex parts of ourselves, particularly as we respond to change. First, there is Sniff -- who sniffs out change early; then there is Scurry -- who scurries into action. Hem denies and resists change because he fears it will lead to something worse, and Haw learns to adapt in time when he sees that change leads to something better. It is likely that you have seen yourself in each of these places at one point or another.

What single change causes the most consternation in the office place? The announcement of job cutbacks. With all the recent staff reduction announcements, this news is all too familiar. With it comes the immediate negative effect on employee morale, both for the laid-off employees and the remaining staff.

A study by Watson Wyatt Worldwide reported that fewer than half of the companies it surveyed after the 1990 recession met profit goals after downsizing. Mercer Management Consulting found that 68 percent of the "cost cutters" it studied did not achieve profit growth for five years. And Bain & Co. determined that companies that announced mass layoffs or repeated layoffs under-performed the market over a three-year period.[2]

Thus, study after study has challenged and often contradicted the long-term benefit of staffing cutbacks as a means to return to profitability. Nevertheless, relentless pressure by Wall Street to deliver short-time profitability often makes this decision inevitable. Perhaps one of the reasons for the lack of long-term benefit is not the decision itself, but how the downsizing is implemented.

Implementing staff reductions requires that you (1) address employee morale; (2) communicate and involve; and (3) search for long-term, "out-of-the-box" solutions.

Employee morale is normally the number one issue that you immediately face. Addressing this issue in a sensitive, yet decisive fashion can set the tone for a well-executed set of responses. Prompt resolution of staffing and organizational issues is essential to the first step in change. The longer the process takes, the more painful it becomes, and the greater the chance of losing key employees in the disruptive environment.

Communicate with and involve key managers to the greatest extent possible to enhance the prospect of employee buy-in and, ultimately, the success of the implementation process. While the final decision-making requires a leadership role (not a group consensus), you should not be timid about seeking out valuable input from subordinates, managers, and peers.

You should be conscious of the natural reaction by some managers and employees to resist any change whatsoever. Beware, too, of those who provide advice that, though well intentioned, may be ill suited to the changed environment.

Look for "out-of-the-box" solutions that may not be evident at first glance, but may provide the best long-term Solution. For example, how many of your staff have openly or subtly expressed an interest in a reduced work schedule? While you may feel you cannot afford to lose time from key employees, you might be pleasantly surprised at the real versus perceived loss of productivity. It may be less than you think! Consider reduced work weeks, job sharing, unpaid sabbaticals, or other creative solutions that simultaneously address workers needs and reduce costs. By responding to a motivational need, you may be able to reduce cost with little or no loss in productivity. Furthermore, you have retained institutional knowledge and probably gained the loyalty of your workers.

Don't become insular in your approach. Brainstorm with employees, other departments, or other companies to fully explore innovative ways to accomplish corporate objectives. The results are often surprising and productive.

Most important, avoid "short-term fixes" that foster long-term problems. Some typical reactions may be to delay audits, cut out documentation procedures, or discontinue key planning projects. Although any of these might address immediate staffing shortages, they clearly do not plan for the long term and may, in fact, precipitate serious problems.

Turning to the process of implementing major staff reductions, consider the following four steps:

1. Reinforce your mission and vision.

2. Redefine your organizational structure.

3. Refine your strategic objectives.

4. Communicate changes.

Step 1: Reinforce Your Mission and Vision

A well-defined mission and vision should stand apart from any changes to organizational strategy and structure. It is the "guiding light" that allows you to navigate through these changes, time and time again.

In their book Built to Last, James C. Collins and Jerry I. Porras suggest that a well-conceived vision consists of two major components: Core Ideology and an Envisioned Future.[3] Core Ideology defines what we stand for and why we exist, and the Envisioned Future sets forth what we aspire to become, achieve, or create that will require significant change and progress to attain.

By defining your response to staff reductions in terms of your mission and vision, you ensure that your strategies are consistent with your core ideology while moving towards your envisioned future.

Step 2: Redefine your Organizational Structure

An optimal organizational structure responds to the questions: What is your department's role in supporting and providing value to the business, and how will this structure complement your vision and strategy? It recognizes that there is no one "right" or "wrong" organizational structure. Each company has a unique culture and vision, with very different strategies. Furthermore, just as strategies are fluid and evolving, organizational structures need to be fluid in order to properly respond to continual changes.

Redefining your organizational structure consists of three elements: (i) understanding the company's revised organizational structure; (ii) understanding your people, and (iii) understanding the technology available to you.

Understand the company's revised organizational structure, paying particular attention to broad structural changes. For example, have you moved from a centralized organization to a more decentralized organization? How have these changes affected both formal and informal modes of communication? Will the revised structure create real or perceived walls of communication because of location, reporting structure, etc.? One of the unique challenges in corporate downsizing is that typically each business unit or department is making these assessments simultaneously and more often than not in isolation from other departments. With that in mind, it is important to learn as much as you can about broad structural changes in order to establish a tax department structure that properly complements the revised business organization.

Understand your people, capitalizing on each individual's personal "style" and motivational focus. Nothing sounds more simple, but is more difficult to achieve.

A number of tools and organizational behavioral theories attempt to capture and categorize personal style. For example, Myers/Briggs testing measures individual preferences and broadly categorizes those preferences into four major categories: Sensing types, Intuitive types, Introverts, and Extroverts.

The value in understanding personal style is that it provides the ability to optimize diversity within a group or team setting and thereby maximize the opportunity for optimal results. The danger in applying these tools is to assume there is a "right" profile for a particular individual within a particular position. It is more important for both you and the team to understand that, as a group, your skills and work styles should complement, not duplicate, one another. This is a key aspect of diversity.

It is also important to recognize that it is inherently easier to manage a "non-diverse" group of individuals, i.e., individuals who have similar styles. Diversity brings conflict, yet when managed properly, a complement of work styles can inevitably produce optimal results.

Understanding your employees also means understanding what motivates them. In most cases, money is not the top reason for job satisfaction. In recent interviews with human resource executives nationwide conducted by Challenger, Gray & Christmas, it was revealed that a growing number of employees -- particularly white collar workers in the increasingly "24/7" workforce -- are now putting time over money as their No. 1 job priority. Another recent study by Radcliffe Public Policy Center found that more than 80 percent of men and women ages 20-39 put family time at the top of their list of workplace priorities.

Knowing that your employees value time off more than pay is important. But it is also important to know what motivates them on the job. In a recent issue of Harvard Business Review, Timothy Butler and James Waldroop discuss "Job Sculpting: The Art of Retaining Your Best People."[4] The authors suggest that in these days of talent wars, the best way to keep your stars is to know them better than they know themselves, and to use that information to customize the career of their dreams.

In their decade-long research into the drivers of career satisfaction, the authors developed and tested a model they call "business core functions." They concluded that all business work could be broken down into eight business core functions: application of technologies, quantitative analysis, theory development and conceptual thinking, creative production, counseling and mentoring, managing people and relationships, enterprise control, and influence through language and ideas.

Although further discussion of this model is beyond the scope of this article, suffice it to say that the ability to identify the unique drivers that motivate an individual's productivity can be the most productive use of your time.

Understand the technology available to you. More than ever, technology has become an integral tool in the daily operations of our business. Although historically technology was limited to compliance applications, today technology affects every part of a tax department's operations, whether it is compliance, research, planning, or audits. Those who have understood and applied technology to its fullest have attained the broadest productivity increases.

With the compatibility of today's software to convert to web applications, exploiting Internet capabilities by moving and processing information through a departmental intranet can enhance the productivity and flexibility of your operations.

Evaluating a revised organizational structure should always include available or proposed changes in or applications of technology. You should bear in mind that the latest and greatest technology is not always the best solution. The real key is understanding the capabilities of existing technology before investing in new technology. What type of return will investments in technology produce in the form of reduced personnel costs or improved productivity? How quick is the payback? What are the associated costs of implementation and training? What is the expected learning curve from adoption of this new technology? How will changes in technology or applications affect departmental processes or its integration with external departments? A full understanding and assessment of technology within your department will affect your decision on organizational structure.

Step 3: Refine Your Strategic Objectives

Although the task at hand may be the reduction of staff, the implications go far beyond simple headcount reductions. The challenge of deploying a reduced workforce is to maintain productivity in an increasingly challenging environment. To make sure you "dont' miss the forest for the trees," start broadly in reviewing your strategy before you address specific initiatives.

First, understand and measure broadly against your "competition." Benchmark key business or industry statistics that you can track with relative ease (e.g., effective tax rates or typical industry statistics) and assess your relative position. Based on this assessment, determine the key drivers of the "value equation" that you must continue to deliver to the business and what activities are no longer imperatives. Understand the changes to the company's strategy and how this will affect your departmental strategy and processes. Prune those initiatives that no longer fit within the revised corporate objectives. Remember: It will become increasingly important to streamline and eliminate the nonessential processes (similar to the thought process undertaken in a company integration process).

Once your refined strategies and revised goals and initiatives have been determined, you will need to establish meaningful measurement tools to track performance against these goals. This can be one of the most difficult tasks of tracking performance, since many aspects of a tax department's performance are dependent on the actions (or inactions) of others outside the department. Do not, however, underestimate the actions within your department that can favorably influence (or adversely affect) the successful completion of your goals.

Here are some "Do's and Don'ts" to consider as you complete this process:

* Do seek out input to understand the current strengths and weaknesses of the department, as well as the perceived benefits and detriments to proposed changes. Obtain buy-in from key managers and customers by communicating how the revisions will address perceived problems and weaknesses they have identified. Be open to constructive feedback.

* Do assign a leader to integrate any process realignments. This role requires considerable diplomatic skill to implement the necessary changes that may be required.

* Don't let the change process evolve by itself. Top managers are integral in the design stages, but implementation is not a natural bottom-up activity. In this regard, leadership is essential because any change will normally be resisted.

* Don't forget to communicate along the way. This leads me to my final step.

Step 4: Communicate Changes

One of the most critical aspects of this process is to successfully "communicate the message." You will, in fact, be selling your proposal to four distinct groups, each of which requires a unique perspective: Upper Management, the Individual, the Department, and the Customer.

Upper Management. Typically, the first target audience is upper management, whether that consists of your immediate superior or a team of upper management executives. This person or group is most focused on assessing the viability of your proposal, its cohesiveness with the organization's overall plans, and its perceived success in addressing permanent staff reduction objectives. By linking your departmental changes and revised objectives to overall corporate changes and objectives, you will enhance the prospect of acceptance by upper management. In this setting, as in all others, the better you understand the expectations of your superiors, the better prepared you will be to address their needs, concerns, and questions -- before they express them.

The Individual. Generally, the next target audience in the communication process is the individual. Clearly, this includes the individual who is directly affected (by loss of employment), but it also includes that individual's superior and direct reports. These surviving individuals will be the most directly affected by the lay-off of their staff or employee. These conversations are naturally the most difficult. Years of experience may enhance one's ability to conduct these conversations as professionally as possible, but they never become easy. It is important, however, to allow the laid-off employees to move on as quickly as possible and to focus on the future of the restructured department.

The one-on-one conversations with the remaining individuals directly affected by the layoff represent your first opportunity to "sell" the revised organizational structure within your department and become fairly specific with the revised roles and responsibilities of the new structure.

Jorgen Sandberg, senior lecturer at the University of Queensland's Graduate School of Management in Brisbane, Australia, recently conducted research on engineers to determine who were the best engineers.[5] His research revealed that "being good at your job means having the right understanding of your job," and he suggested that corporations shift the focus of their recruitment and training programs from flawed attribute checklists toward identifying and, if necessary, changing people's understanding of what their job entails. Whether you concur with his conclusions or not, his research underscores the need for a clear understanding of roles and responsibilities as a means to achieve optimal performance within the entire department.

The Department. No less important is the opportunity to "sell" your revised organizational structure and strategy to your entire department. Once again, I use the word "sell" as opposed to simply communicate, since your delivery of the message is just as important as the message itself. Your department will be looking for all kinds of "hidden clues" based on "how you say what you say," and, needless to say, the rumor mill will have been running rampant. Your ability to sell the future structure and strategy of the department and how it complements the revised corporate structure will go a long way toward enhancing employee morale. You should ensure there is a clear understanding, not only of the revised structure, but how all of the changes fit into the new corporate environment.

The Customer. Last, but certainly not least, is communicating with your "customers." This is particularly important when changes in your department affect the level or type of services they had previously been receiving. Clearly communicating changes, the reason for those changes, and how you have addressed your customer's needs will not only prevent immediate problems, it will also set up a positive communication link to resolve future problems you may not anticipate. Many customers report favorable customer service impressions even when service expectations are missed, as long as communication has been timely and forthcoming. The key to this leg of the communication process is to establish a clear understanding of expectations from both sides.

Summary

Just as good strategy is meaningless without skilled execution, managing change is ineffective without a good strategy. Approaching staff reductions with a disciplined execution process will produce an engaged and motivated workforce well positioned for optimal productivity.

[1] SPENCER JOHNSON, WHO MOVED MY CHEESE?: AN A-MAZING WAY TO DEAL WITH CHANGE IN YOUR WORK AND IN YOUR LIFE (1998).

[2] Wall Street Journal, Feb. 21, 2001.

[3] JAMES C. COLLINS & JERRY I. PORRAS, BUILT TO LAST: SUCCESSFUL HABITS OF VISIONARY COMPANIES (1994).

[4] Timothy Butler & James Waldroop, Job Sculpting: The Art of Retaining Your Best People, HARVARD BUSINESS REVIEW (Sept-Oct 1999).

[5] Jorgen Sandberg, Competence at Work, HARVARD BUSINESS REVIEW (March 2001).

CAROL W. GARNANT is President of ConsultAnalysis LLC, a company specializing in corporate strategic tax planning and management consulting services. She was formerly Vice President, Tax for Sears, Roebuck and Co. and a member of the Chicago Chapter of Tax Executives Institute. She has served as chair of TEI's Corporate Tax Management Committee.