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What Common Mistakes Do Businesses Make When Downsizing Their Workforce?

There's still a talent shortage coming. Make sure you're prepared

Companies across the country are shedding jobs in an effort to cut costs, but many may find they have made some common mistakes that will cost them down the road, says Salveson Stetson Group, a full-service retained executive search firm.

"This severe economic downturn has forced employers to take a hard look at expenses and to make some painful decisions about lay-offs," says John Salveson, a principal with Salveson Stetson Group. "That is an entirely appropriate response, but employers can also fall victim to errors in decision-making that could hurt them further in the future."

Among the most common missteps companies make when downsizing are:

• Not cutting deeply enough. Downsizing is always a painful process for an organization. Many companies try to limit the impact by laying off as few people as possible, when in reality business conditions may call for more significant action.

• Cutting staff without an eye towards the recovery. Many a company has cut staff so severely that when a recovery does begin, it finds itself without the talent it needs to react to a strengthening market. Take the opportunity to evaluate business processes when downsizing to identify whether your now-reduced staff can handle an upswing in business when the recovery comes. Alternatively, create a talent acquisition plan that is immediately ready to execute when business conditions improve in order to bring on the talent required to support future growth.

• Neglecting the "survivors." Don't forget to pay extra attention, says Salveson, to the workers who are still employed. The employees who stay with your company often must take on more work with fewer resources while still reeling from the loss of their colleagues.

• Focusing too much on current economic issues at the expense of broader, demographic issues. Leader thinking is dominated by how bad the economy is, and many executives have lost sight of a broader demographic reality—an aging workforce still means a severe talent shortage is on the horizon.

• Failing to realize the cost of not filling a position. Companies do a very good job of calculating the savings realized by eliminating a position. But rarely do they spend the same amount of time calculating the costs of leaving a position vacant. An unfilled VP of Sales job, for instance, might save $250,000 in salary and benefits; but how many sales might the company lose while the position goes unfilled?

Salveson offers leaders and Human Resources directors these tips for making good talent decisions during trying economic times:

• Look at your world in more than one dimension. Don't operate solely in a "here and now" cost-containment mentality. Make the hard decisions, but look ahead and begin anticipating future talent needs. Too many leaders are so focused on the crisis at hand that they are failing to acknowledge that the economy will recover and their talent needs will shift again.

• Go out of your way to be more visible and accessible. Remaining staff need their leaders to be strong, confident, and present. Pay special attention to star performers and customers; you will want both around when the economy recovers. Recognize that many of your younger, high-potential employees and leaders probably haven’t seen a downturn like this before.

• Don't assume they know how to manage through this. Use this as a teaching moment. Give them the tools and instruction they need to be a good leader.

• Recognize that downturns always create opportunities. This may be an opportune time to make changes you've been contemplating. Have a compensation plan that's outdated? Always wished you could get your workforce to collaborate across boundaries? Work more efficiently? Now is the perfect time to make a change. You've got your team's attention, and the climate is ripe for a new way of operating.