Letting people go is, by far, the most dreaded and painful part of any leader's job. You only do it when you absolutely have to. More than 64,000 businesses filed for bankruptcy in 2008, and a 50 per cent increase could be on the cards for 2009. The reason for this is that a credit crisis-induced recession is far more precipitous and radical than a typical economic-cycle recession. Companies can go from profit to loss in days. Competitors you considered formidable on the first of the month may declare bankruptcy on the last. Customers you thought you could always count on shut their doors. Suppliers that once fought over your business—with ever-lower pricing—merge. Banks that once doled out loans without a moment's pause delay the process by weeks, if they lend at all.
In such times, every little flaw in every business is exposed. And companies that don't take precautionary actions to shore up their competitive positions can find their problems exposed beyond repair. Obviously, different kinds of businesses will need to take different kinds of actions. The recession is disrupting the financial services and luxury goods industries to a greater extent than it affects Wal-Mart, for example, with its everyday value pricing. And certain industries—the car industry, for example—are deteriorating exponentially. Newspapers and magazines, long struggling with dwindling ad pages, are now closing altogether or switching to web-based delivery systems and business models. The recession has also caused a massive increase in the use of video communications. The many airlines, hotels and rental car companies that comprise the business travel industry will feel the effects for years.
No company, even those making a profit, should assume that it will come out of this period looking like it did when it went in. When markets are revitalised—whether that's in 2009, 2010, or beyond—they will be based on a whole new set of realities. Customers, competitors and suppliers will have different expectations and behaviours. Companies must be ready for them by being different too. So, unfortunately, some layoffs are inevitable right now.
You simply cannot change your company without changing the people and what they do. For one sad example, take Circuit City. For many years, the company was a healthy second to Best Buy in the crowded electronics retail industry. But as the economy started to soften, Circuit City tried to "ride out the storm". The weak holiday season delivered a final blow. The company will close its 567 US stores—and let go of 34,000 employees—by the end of March.
If only Circuit City had got ahead of these dynamic times sooner: letting go of employees in its weak lines, redeploying its best people to more profitable ventures. Sure, it might not be flying high today. But at least there might have still been some life in the company, providing some jobs.
The months, and even the years ahead, will take business into uncharted waters. None of us can predict the ultimate outcome of governments becoming involved in the management practices of the companies they have invested in. And no one can tell how soon President Obama's stimulus package will take effect, and to what degree.
Amid such uncertainty, all we can be sure of is that change will come fast and furious, and that survival will require a more aggressive kind of agility and flexibility, as will capitalizing on it.
No good leader ever wants to let people go. But in today's dynamic environment, leaders have no choice. They must consider the dire, unintended consequences of standing still while waiting for the recovery to arrive.
Posted 29 January 2009 : Director.co.uk
