Tuesday, February 24, 2009

What Works Better Than Layoffs - The Speech I Wish More CEOs Would Give

"It's a great time to be Cisco."


That line came from John Chambers, CEO of Cisco. Despite declining sales, Chambers told CNBC that his company had no plans for layoffs, but rather, had moved $500 million into a fund to pursue new growth opportunities.

(For a similar, more recent interview: http://newsroom.cisco.com/dlls/videos/fy09q2_earnings_020509.html)

The same day that I saw Chambers interviewed, I interviewed the CEO of a billion-dollar company who had just announced layoffs. However, unlike Chambers’ Cisco, this CEO’s company was booming, with sales up nearly 20%. So why the layoffs? Because they’d projected an increase of sales of more than 25%, so 20% was a disappointment. Talking to the CEO, I believe that layoffs actually cost MORE than letting the company grow into the larger staff, but the CEO felt the need to react and layoffs have become the knee-jerk reaction of executives everywhere.

Sure, there are situations where layoffs are inevitable, but I believe many could be avoided. Here’s how I wish executives would think about layoffs, expressed as The Speech I Wish CEOs Would Give…

[Speaking to all employees] As you know, our sales revenues are down. I know that you must be worried – fear is a rational response when the media are full of images from the Great Depression. Indeed, everyone is expecting me to announce layoffs – stockholders and other investors want me to do something – anything -- to help keep profits from declining, and layoffs are tangible evidence that a CEO is responding. However, I am announcing today that we will NOT be having layoffs anytime soon.

When companies proclaim that they are going to cut staff, here’s what usually happens. Some of those “cuts” are merely positions that were put in the budget and have yet to be filled, so eliminating them doesn’t actually reduce current spending, just future budgets. Next, and more importantly, the cuts tend to be among the least expensive employees, especially entry-level employees. Thus, should you succeed in reducing the headcount by 10%, you’ve actually cut the spending on personnel by less than 5%, perhaps only two or three percent.

Further, total spending on salaries is just a fraction of overall costs; in our case, one-quarter of total expenses. So if you announce a ten percent lay-off, you reduce one-quarter of expenses by a few percentage points, meaning that you succeeded in cutting costs by one or two percent.

And what is the cost of that cost savings? You have fearful employees, hunkering down, devoting much of the internal conversation organization to worry. That’s not what we hired you to think about.

So today, instead of announcing staff cuts, I am asking you to do join with me in doing the cutting – cutting waste out of our system. My goal is that we find ways to reduce costs by 10%. This will have a financial impact five times greater than cutting the staff by 10%. Further, I want you to find new efficiencies that allow us to take out expenses while better serving our customers. In other words, I’m asking you to be creative, and for that I need confident, bold employees.

If we do this right, and do this together, we will become a better, faster organization. Together we can go without layoffs. Instead of worrying about who will stay and go, I invite you to join me in worrying about how we will become even more useful to each other and to our customers. Instead of getting rid of some of you, I’m counting on all of you – now go out and prove me right.

**

©2009 by King Features Syndicate, Inc.

"I Walked Away From An Easy 2K"

”For those of you with a strong, charismatic personality, it is worthwhile to consider that charisma can be as much a liability as an asset.”
-Jim Collins in “Good to Great”


Picture this: You’ve completed your first week of training for your new job when the HR-ers running things announce that you are now eligible for a $2000 cash bonus. You brace yourself for the daunting list of goals you must reach to qualify, but no -- to get the money you need to do just one thing: quit. Give up the rest of the training, walk away, and you get two large.

That’s how they do it at Zappos, an online shoe and clothing retailer that will do a billion dollars in business this year. The CEO, Tony Hseith says of the invitation to quit, “We started at $100 and keep upping it. Only 2-3% take the offer and that’s not high enough.” But get this – the offer comes with FOUR MORE WEEKS of training to go. I don’t know if this matches your experience, but facing four more weeks of corporate training, most people are willing to grab the “just shoot me now” buy-out.

Still, Zappos makes the offer, not just to get rid of the least committed trainees, but to add to the commitment of those who remain: As Hseith put it, “They will say to friends and family, ‘I walked away from an easy 2K.’”

Hseith certainly knows something about walking away with cash. In 1998, at age 24, he sold his internet start-up company to Microsoft for $265 million. He sold out, he insists, because “the culture went downhill.” When I sat down with Hseith I asked him what went wrong: “I ended up surrounded by people I wouldn’t hang out with.”

Hseith explained that “culture and brand are two sides of the same coin,” and so he wanted to be part of a hang-out-with culture. If you go to YouTube, you can see the employees having fun – there’s the “HR Dancing Queen,” shaking it in ways that would make the typical HR person merely tremble.

Speaking of trembling, do NOT watch the video called “Slap our CEO” with people from HR – they will explosively vomit at the point where Hseith not only gets slapped, but then slaps an employee, apparently for showing up late for work. The people in the video were being playful, but nothing is fun to watch when there’s vomit on your shoes.

All of which might lead you to believe that the CEO would be a Robin Williams sort, bouncing about being wacky. But Hseish resembles a Buddhist monk in blue jeans – he’s not just of Asian descent with stubble-cut hair, but he has a moving stillness that makes you think he’s doing a walking mediation.

You’ve probably read “Good to Great,” and so you know that Jim Collins described the leaders of great companies as “self-effacing, quiet, reserved, even shy.” Tony Hseith goes much further: When I commented on how different he was from the typical pump-you-up entrepreneurs I meet, he merely said “I’m an introvert,” and that was that.

So an introvert created a company full of extroverts so outgoing that the company’s brand is built on playfulness. What does that say to leaders about “set the example”? It says this: The company isn’t who you are; the company becomes who you hire and fire, and who you promote, and in this case, who you pay to leave training and go away.

(This is the final installment of a series featuring speakers at my favorite annual conference, the Compete Through Service Symposium held each fall in Phoenix. The previous discussions can be found at dauten.com.)


**

©2009 by King Features Syndicate, Inc.