Why are CEOs all getting on the layoff bandwagon? If a company is making money during this crisis, why can’t it just ride out the storm without letting people go?
—Name withheld, New York
We can guarantee that no CEO likes being on the bandwagon you describe. Letting people go is, by far, the most dreaded and painful part of any leader’s job. You only do it when you absolutely have to—like right now.
Look, companies and industries are dynamic at the best of times. New technologies routinely alter the competitive landscape. New companies in developing countries regularly upend the status quo with low-cost products or services. And businesses are always coming up with new ideas that turn markets upside down.
But we’re so far from the best of times that these days the environment is “dynamic” on steroids. At least 64,000 businesses filed for bankruptcy in 2008, and a 50% increase could be on the cards for 2009. The reason: A credit crisis-induced recession is far more precipitous and radical than a typical economic-cycle recession. Companies can go from profit to loss in days. Competitors you considered formidable on the first of the month may declare bankruptcy on the last. Customers you thought you could always count on shut their doors. Suppliers that once fought over your business—with ever-lower pricing—merge. Banks that once doled out loans without a moment’s pause delay the process by weeks on end, if they lend at all. In such times, every little flaw of every business is exposed. And those companies that don’t take extreme precautionary actions to shore up their competitive positions can find their problems exposed beyond repair.
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Now, obviously, different kinds of businesses will need to take different kinds of precautionary actions. The recession is disrupting the financial services and luxury goods industries to a greater extent than, say, it affects Wal-Mart with its everyday value pricing. And certain obvious industries—the auto industry, for example—are deteriorating exponentially. Newspapers and magazines, long struggling with dwindling ad pages, are now closing altogether or switching to Web-based delivery systems and business models. The recession has also caused a massive uptick in the use of video communications: The many airlines, hotels and rental car firms that comprise the business travel industry will feel the effects for years.
The point is that no company, even those making a profit, should assume that it will come out of this period looking like it did when it went in. The marketplace of the “revitalized” future—whether it emerges in 2009, 2010, or beyond—will be based on a whole new set of realities. Customers, competitors and suppliers will have different expectations and behaviours.
Companies must be ready for them by being different, too. And so, unfortunately, some layoffs are inevitable right now. You simply cannot change your company while keeping constant its people and what they do.
For one sad example, take Circuit City. For many years, the company was a healthy No. 2 to Best Buy in the crowded electronics retail industry. But as the economy started to soften, Circuit City tried to “ride out the storm”, to use your phrase. The weak holiday season delivered a final blow. The company will close its 567 US stores—and let go of 34,000 employees—by the end of March. If only Circuit City had gotten ahead of these “dynamic” times sooner: letting go of employees in its weak lines, redeploying its best people to more profitable ventures.
Surely it wouldn’t be flying high today. But at least there might have still been some life in the company, providing some jobs.
The months ahead, even the years ahead, will take business into uncharted waters. None of us knows what changes the Troubled Asset Relief Program (and sons of TARP) will bring. Nor can any of us predict the ultimate outcome of the government’s becoming deeply involved in the management practices of the companies it has invested in. And no one can tell how soon President Obama’s stimulus package will take effect, and to what degree. Amid such uncertainty, all we can be sure of is that change will come fast and furious, and that survival will require a more aggressive kind of agility and flexibility—as will capitalizing on it.
No good leader ever wants to let people go. But in today’s dynamic environment, leaders have no choice. They must consider the dire, unintended consequences of standing pat while waiting for the recovery to arrive.
©2008/by NYT SYNDICATE
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