Make the tough calls
When you’re in a situation when you know layoffs are going to be needed, you need to start asking everyone on your leadership team the same question over and over and over again.
“Does that activity add value for our customer?” Cowan says. “If it does not or if you’re not sure, you have to ask yourself, ‘Why are we doing it?’ The only thing we get paid for is providing a product or service to the customer. Do the activities we are discussing add value to our customer? We still hung in there with our innovation efforts and our customer solution efforts. We knew those either were going to add value to the customer or were about to add value. If it’s not adding value to the customer, consider it to be a wasted activity. It’s probably something you could survive without.”
At American Railcar, when the need for cuts was becoming clear, Cowan gathered his senior leadership team and met with them in the executive conference room.
“I showed them the top lines of the company and said, ‘Hey folks, here’s our build schedule going forward for six to 12 months,” Cowan says. “It was no surprise to any of them. They all knew it was gloomy and getting gloomier. We were kind of running ourselves out of business, and so, we had to slow down where we could.”
When you’re talking about the lives of your employees and their future with your business, you can’t afford to be anything but completely upfront about it.
“You have to set a goal,” Cowan says. “I told them, ‘Let’s see if we can do without 25 percent of our staff.’ And this isn’t all just people. You obviously have to take a look at other areas of the business where you can make some cutbacks that would be substantial. But people are a large cost, obviously.”
Once you’ve announced that cutbacks are going to be made, give your team members a chance to mull it over and think about what they can live without.
“Tell them in two or three days, let’s get back together,” Cowan says.
If you come back and you get the response that your leaders don’t feel like they can lose the number of people you believe they need to lose, you’re going to have problems.
“If that’s the case and your bottom line continues to deteriorate, you’re going to quickly get caught up with not having any customers, because you’re going to run yourself out of business,” Cowan says.
“I know a lot of people think business should be benevolent and be an employer first and a profit-maker second. But any business that is running red ink for a sustained number of months is heading quickly to going out of business. If that was still the case and you’re still drowning in red ink, you haven’t thought about what few customers you may have left.”
Fall back on your question about whether the activities in each department add value to the customer. Ask your team members who they can live without to keep the business going. Acknowledge that it’s a brutal decision to make, but it’s one that has to be made in order to keep the company in business.
“It all goes back to if you kept everybody and the business goes out of business, then we all lose our jobs,” Cowan says. “If the 2,500 can go to 1,500 and we can make it through the downturn, we can come out of it a stronger company. That’s certainly the goal you have in mind when you do start.”
If it’s your first round of cuts, you can certainly look at early retirement candidates and people who may be looking to leave of their own accord. You should also know who the people are that you truly can’t live without, who you’ll need to succeed when things do turn around.
“These are the veterans with tons of experience and tons of customer contact and tons of technical knowledge and brilliant accounting knowledge of how to finance and fine-tune a company,” Cowan says. “Those 50 to 100 folks, in any business, you better know who those top handfuls of folks are and be sure you protect them.
