Tim on Leadership

Musings on Management and Leadership from Tim Parker

Cuts: The Good and The Bad

Having to cut staff is one of the worst things a company or a group inside a company can go through.  Usually, cuts are done for one specific reason: to save money.  How the cuts are done differs.  In some cases, an entire project is cancelled or trimmed and all the people associated with that project just get cut.  Sometimes the cuts are targeted to those who are new hires (and hence have less subject matter expertise than someone who has been with the company for years); this type of cut tends to minimize the impact on development projects.  Sometimes cuts are made based on performance: anyone with a performance rating below a cut-off gets targeted.  Sometimes cuts become more person: if you're not on the "good guy" list of the management team, then you're cut.

No matter what method gets chosen for the cut itself, it is seldom perceived as fair or equitable, and almost always involves some good people being affected.  In every case, the cuts always have more impact than just on the cash flow bottom line: there's carry-over effect on project deliverables, of course, but the biggest impact always is on morale.  The question is always hanging there: "will there be more cuts and will I be on the list?"

In R&D groups, we go through cuts and freezes of open headcounts on a regular basis in almost every company I've been with.  From the company's point of view, this is a necessary exercise to manage cash flow, and one that all members of the executive team and Board or Directors need to agree is important.  At first glance, it usually looks like R&D takes more of a hit from cuts and freezes than other groups, but that's because some other groups like sales are hard to cut without affecting growth and income in the short and long term.  In fact, most cuts are companywide, but carefully selected to minimize impact on the company profitability.  Some divisions in a company can save money in relatively easy ways: marketing can buy less advertising or print less brochures, without trimming staff, for example.  But for R&D groups almost all the money spent on R&D is salaries, so cuts tend to mean the only way to save a significant amount is to reduce headcount.  There's little else to trim.  Sure, travel can be frozen and we put off buying new computers, but that saves a fraction of one salary.  So, in cases of R&D where most of the spend is on salary, there's nothing else to trim but people to meet the cash flow goals.

The biggest challenge in headcount cuts is how to do it.  In R&D, the goals are to try and avoid too much of a hit on one group (unless that one group is a logical group to wrap up), and to ensure the cut has minimal impact on short-term promised deliverables (contracts with other companies, up-coming committed releases, etc). There's the impact of the cut on each individual: how easy would it be for that person to find another job>  Some positions can be deferred in their tasks until funding returns, so the importance of the role to the "greater good" has to be considered.  There is no clear "right answer" ever as to "who should get cut".  It is always a balancing act, and sometimes one we can never get right.  The logic for a particular set of cuts is not something that can be opening discussed in all cases, either, but in almost all cut situations you can bet that the executive and Board have had long debates leading to a consensus for the good of the company.  There are always some very good people let go, and there are often questions about why particular people are cut, but in all cases the employees have to believe that management has done what they did for valid reasons.

Cuts are never a good thing from the personal level, but they are a necessary part of business and the right thing to do in some cases to ensure a company's success.  But what's the "good" that came out of these exercises I mentioned in the title?  Well, in reality, cuts usually have limited impact on deliverables, which is good for the company and the customers.  In some cases, adjustments to programs and deliverables have to be made, delaying some projects or postponing some work, but the business of an R&D group goes on even after cuts are made.  Another good thing to come from cuts is the focus it allows on priorities.  When you have extra staff there's a lot of extra projects under way.  When the cuts are done, it allows a focussing on what's central to the company.  Finally, the last good thing to come from cuts to R&D is to the rest of the company.  R&D tends to get hit first, and most, during cuts, and as long as R&D bounces back strongly, the rest of the company can see that the development groups are not only doing their fair share (and sometimes more) but they are key to the success of the company.

In the end, hopefully those who are terminated during cuts end up in good jobs elsewhere and success with minimal impact on their personal lives.  We all lose friends and colleagues in cuts, but the company tends to be better positioned for going through the exercise.  Like it or not, cuts are part of a Corporate environment in today's economy and every company eventually faces those tasks.   Moving between companies gives the cut people a chance to learn new skills and new processes, and expand their careers.  We get to work with new people when replacements are brought in, and add some new knowledge to our groups.  And that's a good thing.