Why Initiate a Reduction in Force Event

Reorganization

A Reorganization is an initiative to reassign employees to better meet the organizational objectives. Reorganizations typically happen once or twice a year, but with recent economic turmoil, reorganizations are being used much more frequently to adjust the workforce and manage to objectives.

Reorganizations can be costly in many ways. First, administrative and managerial time focused on the reorg is time taken away to day to day responsibilities. Second, once word of an impending reorg gets out, general workforce productivity lags until the reorg is complete. There are significant costs incurred if the reorg causes redundancies and the organization needs to layoff employees. And yet more costs if the organization lays off the wrong employees and needs to rehire for those positions. This occurs frequently when the reorganization process isn't managed effectively.

What begins as a reorganization, can quickly take on a reduction in force (or RIF) component. Reductions in force can be voluntary or involuntary. Organizations often begin with voluntary reductions, allowing employees with certain years of service or within a few years of retirement to elect to take a severance package instead of continuing employment.

If reorganization goals are not met with the voluntary reductions, involuntary reductions are usually close behind and eliminate certain positions, geographies or employees.

The average organization’s stock rises 4% if an RIF is clearly articulated as part of a broader restructuring plan.

Offshoring

Offshoring is defined as the transfer of service operations to foreign countries in order to take advantage of a relatively cheap supply of skilled labor. An organization could offshore services to a foreign company, or could use a wholly owned subsidiary in a foreign state to provide services. Either way, the main benefit is cost reduction and the initiative usually results in redundancies in the home country.

RIF / Downsizing

Corporate leaders must always carefully evaluate how their company is organized to meet goals and objectives. This requires some organizations downsize via Reduction in Force. Reductions in Force or RIFs could be temporary employee suspensions or permanent terminations. RIFs result from management deeming a particular position no longer necessary or are driven by economical constraints or downturns. RIFs have been rampant throughout the 2008 - 2009 recession, with nearly 700,000 workers laid off from America's largest 500 public companies during the period. Add the workers from smaller and non-public entities and you have the largest job loss since the Great Depression.

There are several forms of Reductions in Force:

• RIF: The general term and abbreviation for a reduction in force. Its cause could be anything from cost-cutting measures to slowdowns in demand.
• IRIF: An Involuntary Reduction in Force refers to RIFs in which employees are selected to be separated.
• VRIF: A Voluntary Reduction in Force occurs when an employee opts to leave an organization, usually in return for an attractive severance package.

RIFs can be costly. For example, a recent 70 person reduction at Extreme networks netted a write-off of $4.2 million, or an average $60,000 per person in severance and other costs . In addition to severance costs, the financial exposure from RIFs can increase dramatically if there is any litigation. It is vital that companies carefully plan and document their decision-making processes and employee records to avoid legal disputes.

M&A

Mergers or acquisitions frequently result in a workforce separation event. Most mergers or acquisitions are initiated by a desire to gain efficiencies by combining two entities. As part of the merger integration process, management teams need to evaluate employees from each organization and determine who to retain and who to separate.

The separation process around M&A often is subject to different legal restrictions in each geography. For example, the European Works Councils require management teams to make decisions on positions without knowledge of the individual. In the US, the WARN act requires employers to notify workers of separation decisions 60 days in advance if a certain number of employees are effected in a geographical area.

Often the reduction in force decisions and requirements slow M&A progress to a halt, delaying joint operations and negatively impacting post-merger success. If business rules, contracts and regulations are not followed, the process could expose the entity to significant legal risk.

Done right, with full information and consistent processes, the integration can proceed without incident and can add immense value to the post-merger organization.

Ongoing alignment with business goals

Iconic business leader Jack Welch popularized a "forced ranking" system of performance management in which low performers are continuously managed out. "An effective performance appraisal system, he said, relies not only on honest feedback but also on meaningful differentiation among employees. At GE, he put these principles into action by implementing a forced ranking system that divided employees into three distinct segments: the top 20 percent of performers, the middle 70 percent, and the bottom 10 percent.

According to Welch, "You should take the top 20 percent of your employees and make them feel loved," Welch advised. "Take the middle 70 percent and tell them what they need to do to get into the top 20 percent." Managing out the bottom 10 percent of performers is necessary not only for the organization's continued success but also for the sake of employees affected by the rigorous appraisal system. "People need to know where they stand," Welch said. "Failing to differentiate among employees—and holding on to bottom-tier performers—is actually the cruelest form of management there is."

For organizations managing to a forced ranking system, managing reductions in force is part of business as usual. They not only need a uniformly used talent management system, but also sound processes for making decisions and managing transitions out of the organization. Technology such as the HumanConcepts Transition Manager

See also

• Types of Reductions in Force
• Reduction in Force Best Practices for Employers
• Technology Support for the Separation Process
• Reductions in Force: Key Things to Keep in Mind