Managing Risk Strategically
Donald L. Creach and Greg Kesler
White paper, 2002
You’re sitting at your desk, having what passes for a normal day in Human Resources, when the edict comes down from the CEO’s office: reduce headcount by 10%. You groan and think, “Here we go again.” But you take comfort in knowing that you’ve gone through this drill before, and you reach in your desk drawer to get the old reorganization forms so you can send them out to all the division heads.
Not so fast. You don’t have to do it the same way as last time, and you probably shouldn’t.
First of all, you don’t have to repeat the mistakes that have historically been made in workforce restructuring.1 You don’t have to apply ineffective processes or take valueless risks. Better than that, you can manage the inevitable risks more strategically. Best of all, you can take advantage of this opportunity to institute talent systems that will actually improve your organization’s effectiveness.2
In the ’80s, employers restructured their workforces because of mergers and acquisitions. In the ’90s, they restructured because of process reengineering and other performance or quality improvement initiatives. So all the restructuring is done, right? Obviously not. Employers continue to find it necessary to restructure for a variety of reasons, including economic downturns, continued mergers and acquisitions, competitive pressures, globalization of markets, technological changes, and structural or operational changes.
As employers face the next round of restructuring, they can benefit from the experiences of the past twenty years. At a minimum, they can avoid tactics and approaches that have proved ineffective, have caused excessive disruption and expense, and have failed to satisfy regulatory requirements. But this article does not focus on those minimal learnings. Rather, we believe an employer should be able to apply judgment and legal savvy to evaluate and manage the inevitable risks of a restructuring in a much more strategically focused way. And we believe a company that wants to achieve real breakthrough improvements in talent can capitalize on the opportunity a restructuring provides to bring about that result.
A couple of preliminary notes. First, this article applies primarily to restructuring the exempt workforce, or even just the managerial workforce. Restructuring the non-exempt ranks is generally much simpler and does not justify some of the types of analysis and effort this article describes. Most HR groups that have had to conduct a restructuring effort in the non-exempt ranks are already aware of the applicable requirements3 and have established suitable methods for administering such a program. In general, we believe a restructuring program in the nonexempt workforce should be designed as simply as possible, both for ease of administration and to discourage challenges. For example, if the employer bases non-exempt RIF decisions solely on seniority, that will be simple to administer and employees will be able to satisfy themselves (simply by referring to the seniority list) that the decisions are non-discriminatory,4 consistent, and at least roughly fair. A simple method such as seniority will not ensure that the employer retains the best performers, but the burden of identifying those performers and defending performance-based decisions generally outweighs the business advantage of undertaking such an effort for the non-exempt ranks.
The other preliminary note is a fundamental lesson from the past 20+ years of workplace restructuring initiatives: to restructure effectively and defensibly takes time and resources. Too often, upper management demands immediate results and is too focused on cutting costs to put the needed resources into planning and properly conducting the restructuring. We do not mean to be naïve about the realities of restructuring. We recognize that often companies that undertake restructuring initiatives are under enormous pressure to cut costs and bring about other dramatic changes as quickly as possible. It is unusual for an employer to take the time and devote the resources to conduct a restructuring process as we describe in this article. We believe it is helpful, however, to describe the steps that ideally are taken in a restructuring process when sufficient time and resources are available. With such a complete description, an employer that is facing pressure to cut steps and costs from the process can make deliberate and thoughtful choices as to the steps to eliminate or modify.