Should you Abandon Ship or Change the Way the Crew Paddles?

I saw an interesting fact recently that an average of more than 500,000 businesses failed in the United States duiring each of the 10 recessions that have occurred since 1945.  You would think that with all the time to learn and understand what to do and prepare for, and how to respond to, the challenges of an economic downturn business owners and managers would have a primer of how ot handle this by now. 

 

Many of us having lived though several economic slowdowns and the uncertainty they create are not surprised by how many companies are quick to respond by scaling down their operations. Staffing reduction can have both negative and positive consequences for an organization and the economy in general. That is why it is important that business owners and managers consider all the issues when working though these unsettled times.

 

So, the question is:  When the ship is taking on water, should you lighten the load or have the crew paddle and bail faster?  What should you do to survive until the storm abates?

 

By now many managers of companies have gone through a difficult exercise of rationalizing whether to layoff staff or just not replace employees when positions become open due to attrition and are working on a strategy of running their organizations with significantly reduced headcount.

 

The reasons given for employee reduction for most companies are surprisingly similar.  When one is confronted with declining revenues and rising costs something must be done for the business to survive.  Increasing sales in difficult economic times can be a challenge.

 

For many business owners and managers the first reaction is to reduce their sales force and customer support positions based on the decreased demand for products or services. That also is often a risky undertaking, as less people calling on prospects and customers often equates with diminished customer intensity, loss of reputation for customer care, and decreased ability to outpace the competition.

 

The fact that many organizations are caught by surprise so quickly by slowing demand for their product or service shows us just how ineffective our long range planning can be. The budgets that seemed so achievable when plans were made last fall were mostly based on last year's numbers, and are almost never adjusted downwards based on the long-term economic forecast.  While it may seem realistic to predict lower sales in the next year it almost seems un-American to forecast a reduced amount of sales in the next year for many business owners and managers.  Many who are responsible for performance are quick to blame their sales force or marketing department and start the staff reductions in those departments.

 

On the other hand, you can't blame every sales decline on your sales force or your marketing message. They may be performing quite well to deliver the sales levels you are achieving.  One school of thought says not to lay off salespeople during times of uncertainty. Rather, look for ways to bolster the team you have.

 

"In tough times, I think you're better off having more than fewer as long as you can get performance," says John Monoky, an adjunct professor at the University of Michigan Business School and a sales consultant.  He believes that companies should free up their salespeople to focus on new accounts. "What's happened with all the downsizing is, you have the salespeople involved in the servicing and maintaining and retaining [of accounts], but they're not working on getting new business. You've got to put in the infrastructure to support their going out and selling."

 

During recessions, consumers and marketers alike must make the best of a bad situation. Not every brand will cut spending, but many of those that do will find themselves at a disadvantage when the recession ends.  Sales and Marketing managers need to make the most of every dollar spent in support of their brands if they hope to maintain strong consumer relationships. Those that succeed should then be well positioned to take advantage of weaker competition when the good times return.

 

Once you reduce headcount and then the economic conditions change companies must dedicate a significant amount of time and effort to rebuild a qualified sales force.

 

Sometimes you just have to stop the bleeding and layoffs are necessary. If that is the case, then there are steps you can take to minimize the damage. Many experts recommend investing in training for your remaining employees to demonstrate your commitment to them; surveys have found a substantial correlation between an increase in job training after layoffs and subsequent increases in profit and productivity.

 

Substantial lay-offs are unlikely to be the right solution for the prosperity of the company.  A recent study of almost 300 companies that weathered the last recession shows that over a three-year period companies that dismissed more than 3 per cent of their employees did no better than those that made smaller cuts or no cuts at all. Companies that cut more than 15 per cent of their workforce performed much below the average and, significantly, the companies that announced repeated rounds of job losses did worst of all. 

 

One other strategy to consider is that many employees might prefer the option of continued employment at a temporarily lower salary than to endure layoffs.  Salary reductions may also have a less negative impact on morale, provided it is done equitably across the whole organization and everyone is making the same proportionate sacrifice including managers and business owners.

 

Business owners and managers should spend time working on plans to ensure their company is meeting customers’ existing needs. Put a plan in place to encourage your marketing department and sales force to gather feedback and keep track of changing customer needs. What new services and products might be appealing to customers and potential customers?  This may also be a great time to weed out those problem customers that are costing your organization as much or more than they return.  Customers that are constantly dissatisfied and who pay late in even in the goof economic times are unlikely to be profitable when times get tough.

 

Although they are not exactly welcome at the time, downturns and even recessions can in fact be very healthy for those that survive it. They force organizations to occasionally confront and pare the fat and inefficiencies that no one pays attention to in when the economy is humming along.

 

But when you come down to it, success still comes from within.  Opportunities are all around us even in unstable economic times.   More millionaires were created in the Great Depression than at any other time in history. 

 

I recently receive an email from Neal Anderson telling me “The economy is booming if you are calling on the right folks. The economy has never been stronger for those that find a way instead of always finding an excuse. Those that call on the wrong prospects, don't save 10 percent, give away 10 percent, and amass debt will always be affected by a price increase. Some people feel gas is expensive...while they pay 35 dollars per gallon for coffee.”