Are you making the correct choices as it relates to human capital? Many organizations are being faced with challenging human resource decisions, in part because of weak economic conditions here in the United States. Unfortunately many business owners and managers find themselves aggressively engaged in “right-sizing,” a term made popular during the late 1980’s and early 1990’s. Often this term has been used to describe human capital needs aligned with revenue or profitability.
While there are many different ways to pursue economic lay-offs, these decisions and choices are never easy. Organizations need to focus on the strategic objectives and be very honest about the organizations direction. As difficult as it may be, if you are faced with these tough choices you need to focus on what is the best choice for both short and long-term survival. Often when discussing these situations many business owners and managers will quickly divert into external factors, such as the employee’s personal situation, family size, and medical conditions. As sensitive human beings we feel the pain and sorrow associated with such difficult decisions, but the reality is that we need to make choices which allow for the survival of the organization.
Below are a few points to consider, keeping in mind that every situation is unique and the appropriate call to action could vary drastically from organization to organization.
1. Headcount to revenue ratios: Are we right-sized? How much revenue does each person need to produce? (Gross Revenue / Headcount = Ratio) or (Gross Profit/Headcount = Ratio)
2. Gross Profit / Products and Services: What areas yield the most GP? Who can add value to this revenue stream? How can we capitalize on what is working well, instead of focusing on what is not working.
3. Technical/Trade Skills: What employees bring the most skills and how do they relate to items 1 and 2?
4. Outsourced Opportunities: What can be outsourced to reduce costs? While not always a good solution, it often is very effective short-term.
5. Fight of your life: If you are in the fight of your life, who do you want standing beside you? This should be based on 1 through 4 and not based on emotional choices because of compassion. Who can really make the most impact while keeping the organization progressing.
Sound too tough or too “cut-throat?” During leadership workshops and coaching sessions I have often facilitated discussions on this topic and consulted with organizations to help them think more strategically about their human capital. Nearly all employee terminations are difficult, but economic lay-offs I always find the most challenging.
Remember your responsibility to the organization for survival and profitability. Part of that responsibility is the organizations reputation, so don’t disregard the stigma of becoming a “cut-throat” entity. If you become identified as “cut-throat,” when the economic conditions improve you will have new challenges to face with rebuilding a workforce in your local community.
