Making Tough Business Decisions: Five Steps

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There is a difference between leading and managing, especially in a turnaround or renewal situation, where making tough business decisions can make the difference between the health and survival of the business, or a rapid and uncontrollable downward spiral.  And no decision is as tough as those involving personnel.  If you’ve read our previous blog post on Transformational Leadership: Top Tips for the First Six Months, you will know that the majority of these actions should be completed in a two to three month timeframe.  This post, written by an expert in corporate transformation, will help guide company leaders in making tough business decisions associated with personnel actions.  For additional posts in this series, check out Special Situations and Creating One Team.

Inspired Leadership is a Must, not a Nice-to-Have

Inspirational and visible leadership is the essential component to preserving core people assets and can prevent key talent from leaving while righting the ship.  Organizations in turnaround or renewal situations likely have a wide range of potential issues, including high employee attrition, low employee morale, and employee non-performance issues. In some cases, these situations may have taken years to create, but the nature of a turnaround mandates prompt action.  Deciding who to keep and who to let go is one of the most difficult decisions any leader can make.

As a leader in a tough business situation, you must assure the retention of the key talent of the company, while at the same time moving swiftly to adjust headcount to meet financial requirements and align talent with responsibilities.

Immediate Personnel Actions

As shown in the First Six Months Plan Template, the majority of these actions should be completed in a two to three month timeframe, though others, such as recruiting a complete team and building an integrated team, will take the full six months. The immediate steps to be completed in rapidly renewing your human resources talent are:

  • Triage the Team
  • Special Triage Situation: Dealing with a Prior Incumbent.  Read more here.
  • Make the Team your Ally
  • Expand the Team
  • Create “One Team”: Inspiration and Collaboration.  Read more here.

We’ll discuss the first of these steps below, the others are covered in separate blog postings.

Triage the Team

One of the key tasks for a new leader taking over an existing group is to quickly triage the team into four groups:

  • Keepers: Key talent to keep long-term
  • Evaluating: Employees to evaluate for performance in their new roles or in the new organization
  • Transitionals: Employees to keep for a transitional period of no more than three to four months
  • Terminated Employees: Employees to terminate immediately or in the very near term

Efficiently and quickly completing this task is one of the most important responsibilities of any new leader, and the success with which this is accomplished is a direct determinant of the leader’s ultimate success. Nevertheless, few HR books or guides walk the leader through making these tough business decisions, and without guidance, mistakes may be made.

Many new leaders are hesitant about undertaking this task, for a variety of reasons: they are reluctant to terminate employees, may not have done a workforce adjustment before and feel ill-prepared, may feel certain employees have essential knowledge or that continuity is necessary. In many cases, particularly with technology executives, the leader may feel that teambuilding and leading are “soft skills” that need to take a back seat to tasks that are more comfortable for many technologists, such as setting strategy or redefining product direction.

Maintain Highest Levels of Integrity, Respect, and Fairness

Workforce adjustments are difficult – for the leaders as well as the employees – and a good leader will work through this process swiftly and with high integrity, respect for employees, and fairness.

In most situations, depending on size of the team and whether the new leader comes from the inside or the outside, the first critical phase will take anywhere between two weeks and two months. In situations where the leader is internal to the company, and/or knows the group well, this should be as short as two weeks. In situations where an outsider is coming in, it could be one to two months, but should not be longer.  But whether the executive making tough business decisions is from the inside or the outside, it is imperative that the leader operate with the highest levels of integrity, respect for employees, and fairness.

Leaders who ignore these “soft skills”, often doom themselves to a snowballing crisis of confidence in a short period of time which can be extremely difficult to recover from. A leader who is perceived as “bleeding talent out the door” can quickly lose the confidence of their manager or their board.

Assume all Employees are Trying to do their Best

It is important to undertake any organizational or strategic transformation with the assumption that everyone is trying to do their best, and as far as possible make them part of the solution, rather than assume everyone is incompetent and take a “scorched earth” policy. Granted, in many cases, employees are actually not going to eagerly embrace transformation. It is nevertheless good policy to act as if they will.

The reason is simple: as often as not, you will find that employees pleasantly surprise you. If you assume they are competent and will do well, many will rise to the new challenge. Possibly they were poor performers because the prior incumbent was a poor leader who did not provide direction, and under your leadership, that person may be able to blossom and perform extremely well. But even if that is not the case, from a practical perspective, except under very unusual circumstances (bankruptcies, restructurings, etc), you cannot terminate everyone instantaneously, and you will fail as a leader if you are not able to effectively retain some of the key talent until you are able to add other key members to the team. In any transformation, retention and termination must be delicately balanced so as to keep the people you want to keep and terminate the ones that are not part of the forward-going organization.

Segment Employees by Business Needs

As described earlier, it is important to group employees into four categories. The actions to be taken depend on the category the employee is part of:

Keepers: Any organization will have a small number of people who are the brain trust of the company, who have either unique skills or unique IP. It is essential to safeguard these individuals and to ensure that they are going to remain with the company, and preferably, will serve as evangelists for the change. Do not underestimate the power of the thought leaders in an organization to create a groundswell of support and rally the doubters, or alternatively to subtly block the best laid plans. For those individuals you have identified as “keepers”, it is essential that you meet with each individually and personally emphasize to them their importance to the team, solicit their input, and enlist them to the cause. This need not be only your direct reports, but any top performers and employees who are perceived as thought leaders.

Terminated employees: There will be a set of employees who will need to be terminated. There are two key reasons for an employee to fall into this category:

  • First, it may be necessary to rightsize the organization to changed revenue levels. In general, for an established company, as much as a 40% workforce reduction may be needed to return to acceptable operating levels. A deep reduction will also give the new leader the flexibility to add key hires and still operate with a significant reduction.
  • The other key reason is quite simply that the position requires new or better skill sets.

What is important with terminations is to do them all at once, do them swiftly, and afterwards immediately call the entire group together to explain why and emphasize that if they are not gone, they will be kept.   When making tough business decisions of this kind, it is essential to stabilize the employee population.

Evaluating: In a number of cases, some employees may fall in the indeterminate zone. Perhaps they appear competent, positive, and knowledgeable, but their group seems to be poorly run. Perhaps their group is well run and the employee appears skilled, but they state openly that they disagree with the transformational direction and appear disruptive in meetings and abrasive to their co-workers.

Although the Keepers and the employees needing termination are often quickly identified, with the Evaluating employees, where the decision could go either way, nothing short of a more extended period of time working with the individual on a regular basis will provide the answer as to whether the person is a Keeper or to be placed on the terminate, or possibly a transitional list. Perhaps, in the situation described above, they are indeed competent, positive, and knowledgeable, but they’re poor managers. They may turn into Keepers after re-assignment to a non-management role, or you may decide that you really need a manager and can’t afford to both hire a new manager and keep the employee. Or perhaps they are good management material, but had been promoted with no training, or perhaps prior management had policies which prevented them from being effective, in which case with some training or changed policies, you will have an excellent Keeper manager.

Individuals in the Evaluating category will sort themselves into their respective long-term categories in the three to six month timeframe, and usually closer to three months than to 6 months.

Transitionals: In some situations, you may have determined that the individual is not a long-term Keeper, but they have specific knowledge that is important for a transitional period. These can be especially tricky to manage, but an up-front approach is recommended and can often be a win-win for the individual and the organization. In general it is best to be open – indicate a transitional period where they will remain employees, possibly put them on a consulting retainer (in exchange for them not going to a competitor and delivering certain needed services). Arranging a transition period will allow the individual to search for a job, enables the leader to bring in a replacement or seamlessly transition responsibilities to another, while providing continuity to the business. There is always a risk that the individual may instead choose to leave, but in most cases, if they have been dealt with forthrightly and fairly, they will effect the transition to the best of their ability.

Want to see the next blog in the sequence?  Read here.

Don’t “Go It Alone” in Making Tough Business Decisions!

Making tough business decisions around personnel in a crisis situation is one of the most difficult tasks a CEO or leader can undertake.  BusinessExcelleration’s former operating executives have “been there, done that” through multiple similar situations and can bring a wealth of knowledge and experience to help you through making tough business decisions.  Check out our CEO Advisory Services and Turnaround Management Services, or contact us today.

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