Leadership Barometer 33 Downsizing Tips

January 13, 2020

Every organization deals with downsizing occasionally in a struggle to survive difficult economic conditions. These times are true tests of the quality of leadership.

In many cases, downsizing leads to numerous problems in its wake, especially lower trust.

The most crucial shortage threatening our world is not oil, money, or any other physical resource. It is the lack of enlightened leaders who know how to build trust and transparency, especially when draconian actions are contemplated.

We are in need of more leaders who can establish and maintain the right kind of environment. A serious problem is in the daily actions of the leaders who undermine trust, even though that is not their intention.

The current work climate for leaders exacerbates the problem. The ability to maintain trust and transparency during workforce reductions is a key skill few leaders have.

Downsizing is a unique opportunity to grow leaders who do have the ability to make difficult decisions in ways that maintain the essence of trust.

Thankfully, there are processes that allow leaders to accomplish incredibly complex restructurings and still keep the backbone of the organization strong and loyal. It takes exceptional skill and care to accomplish this, but it can be done.

The trick is to not fall victim to the conventional ways of surgery that have been ineffective numerous times in the past. Yes, if you need to, you can cut off a leg in the backwoods with a dirty bucksaw and a bottle of whisky, but there are far safer, effective, and less painful ways to accomplish such a traumatic pruning.

One helpful tool in a downsizing is to be as transparent as possible during the planning phase. In the past, HR managers have worried that disclosing a need for downsizing or reorganization might lead to sabotage or other forms of rebellion.

The irony is that, even with the best secrecy, everyone in the organization is well aware of an impending change long before it is announced, and the concealment only adds to the frustration.

Just as nature hates a vacuum, people find a void in communication intolerable. Not knowing what is going to happen is an incredibly potent poison.

Gossip and rumors generally make the problem bigger than it actually is, and leaders find themselves dealing with the fallout.

Human beings are far more resilient in the face of bad news than to uncertainty. Information freely given is a kind of anesthesia that allows managers to accomplish difficult operations with far less trauma. The transparency works for three reasons:

1. It allows time for people to assimilate and deal with the emotional upheaval and adjust their life plans accordingly.
2. It treats employees like adults who are respected enough to hear the bad news rather than children who can’t be trusted to deal with trauma and must be sheltered from reality until the last minute.
3. It allows time to cross-train those people who will be leaving with those who will inherit their work.

All three of these reasons, while not pleasant, do serve to enhance rather than destroy trust.

Don’t humiliate people

Another tip is how to break the news to someone who will be terminated. One way to handle the situation is to ask yourself how you would like to be treated if the situation were reversed. Would you like to be paraded down the hall to pack a box with your possessions and escorted outside the gate and forced to hand over your keys and badge?

Many enlightened leaders have handled the separation in a more humane way. They break the news to the individual and share that the employee needs to find alternative employment. They may even offer assistance with ideas on where to look and offer for a reference.

Then, the employee is not immediately escorted off the premises, but is allowed to pack things up over the next several days and say good bye to friends and work colleagues. Some employers have even experimented with letting the impacted worker use the facilities and equipment for a short while during the job search.

HR managers will quickly point out the risks of having formerly employed workers on the premises, and it is true that the person needs to understand that if he or she is disruptive in any way, then the leaving will be immediate.

The idea is that when you treat separated employees with respect and kindness, even when the news is not good, they respond with a better attitude, which generally improves the outcome.

The more powerful result is that the employees who are not leaving are also impressed by the way these former colleagues were treated. That factor tends to bolster morale a bit for workers who are now asked to take up the slack.

Full and timely disclosure of information and thoughtful exit processes are only two of the many tools leaders can use to help maintain or even grow trust while executing unpleasant necessities.

My study of leadership over the past several decades indicates that the situation is not hopeless. We simply need to teach leaders the benefits of building an environment of trust and transparency and how to obtain them.

Robert Whipple, MBA, CPLP, is a consultant, trainer, speaker, and author in the areas of leadership and trust.


Merger Problems

January 23, 2015

M&A or Merger and Acquisition text on blockNumerous studies have found over 50% of mergers and acquisitions fall short of expected results, primarily due to the failure of the cultures to integrate well. Why, then are CEOs so cheerful when they head into one of these major restructuring activities?

 

In my book, Trust in Transition: Navigating Organizational Change, I discuss 30 different systemic problems with making mergers work and give antidotes to each of them. In this brief article I will describe what I believe are the five most serious problems and suggest ways to mitigate them.

1. Relying too much on the mechanical process

When MBA students learn about M&As, the content usually is focused on the financial and legal details of setting up a combined entity from two unique groups.

Topics covered include asset valuation, due diligence, negotiation, legal aspects, management structure, and numerous other organizational things that must be considered. Few programs give equal attention to the cultural part of the equation.

Students are left to assume that the culture simply “sorts out” by itself over time. That oversight is huge because cultural issues are usually the root cause of merger problems.

For example, the Daimler-Chrysler merger in 1998 was a classic debacle that cost Daimler nearly $36 billion over a decade. The magnitude of a loss that large, was almost $10 million per day for 10 years! The major reason for the breakup was the failure of the two cultures to integrate.

To improve the M&A process, it would be helpful to give the cultural integration equal footing with the legal and financial aspects of the activities from the start.

2. Loss of objectivity leads to inadequate planning

Top leaders can easily see the benefits, and they look seductively attractive. The costs and hassles seem to be manageable, so not much energy is spent on internal culture issues or potential external problems for customers.

The upside of the deal is championed, while challenges are pushed aside. Objectivity gives way to passion for the deal.

Anyone who questions the validity of an assumption or brings up a potential problem is labeled as “not a team player,” so reasonable dissent is extinguished.

Here are three antidotes for this situation:

1) have a trusted Devil’s Advocate on the senior team who will prevent myopic optimism,

2) explore potential problem areas and design solutions that mitigate risk, and

3) calculate the ROI based on the best guess of the benefits, but inflate estimated costs and problems, because real costs will surface later and often be larger than anticipated.

3. Lack of adequate training

Leadership training is crucial during any kind of reorganization. Many organizations back off on training for leaders because there is so much chaos during the integration that most leaders are “too busy to sit in the classroom.”

Antidote: Bring the classroom to the chaos. What better time is there to do leadership development than right there in the middle of the crucible? Skilled L&D professionals can leverage the urgent need for solutions into pragmatic problem solving and motivational skills.

Supervisors are also in urgent need of leadership training during a reorganization. Reason: they form the critical trust link between the management layers and the workers. Changes faced by each supervisor are stressful personally, yet this individual is vital in creating order for the other people.

Weak or bully supervisors often come unglued due to the pressures of a merger. They need training and assistance in order to perform their function when it matters most.

4. “We Versus They” Thinking

From day one, the leaders must not only preach the avoidance of “we versus they” thinking, they must model it and insist on it.

I often hear language that indicates lack of full integration years after a merger has been supposedly completed. It is essential to replace parochial thinking with “us” type language and actions.

One way to help speed the integration is to co-locate the groups. That is often impossible in the short term, so transplanting some key resources from one group to the other is another way to make it harder to tell who “we” are and who “they” are.

5. Loss of Trust

In the anticipation of a merger or acquisition, adrenaline drives expectations of what the merged entity can accomplish. It is easy to assume the individual needs will be resolved and team cohesion will somehow settle in quickly.

That is usually not the case, and often bitter feelings linger on, hurting the integrated organization for years.

Candid and frequent communication is needed to keep people informed and allow top managers to feel the angst of workers. It is in these interfaces that trust is either maintained or destroyed by the behaviors, words, and body language of senior leaders.

Ten Best Practices

Anticipate a bumpy ride, and expect that significant psychological calming is going to be needed at times. Here are some additional ideas that may be helpful:

1. Be clear and transparent throughout the process.

2. Create design teams early to help people connect with the future more quickly.

3. Include the customer in every decision, especially during the chaos phase.

4. Assume the risk of setbacks willingly, and do not let unexpected issues spoil the overall process.

5. Invest in some Emotional Intelligence training for people in the organization, especially management.

6. Celebrate positive movement in an integrated way to model the spirit of the merged culture.

7. Bring in a grief counselor to help people cope with the loss and the transition.

8. Train leaders to model the integrated behaviors, and do not tolerate silo thinking.

9. Consider cross-locating or co-locating people, where possible.

10. Prune redundant resources delicately with a sharp scalpel rather than a long line of guillotines.

There can be times of joy and accomplishment during any merger or acquisition. It is possible to maintain trust, even amidst the chaos. After all, the vision for the whole activity is a brighter future.

The wise leader will recognize that changes of this magnitude require extraordinary effort and patience to achieve the anticipated result.

By focusing the same level of effort on establishing the right kind of culture as they do on the financial and legal aspects of reorganization, leaders can ensure they meet or exceed their goals.


New Book: Trust in Transition

June 21, 2014

Trust in Transition Cover060Is it possible to make major organizational transitions without catastrophic loss of trust?  I think there is, but the odds are against you unless you change the conventional thinking process. What is required is a new approach toward navigating organizational change.

My new book, Trust in Transition: Navigating Organizational Change, will be launched on August 18, 2014 by ASTD Press and is currently available for preorder.

The book is about how organizations must do a better job of preserving and enhancing trust when they go through changes such as reorganizations, mergers, acquisitions, or other restructurings.

Your purchase of the book includes access to a set of videos that enhance several of the key points.

There are numerous books on managing change, and many books and articles on M&As. My book is unique in that it focuses on the actions and behaviors needed to maintain the vital trust between people and organizational layers during the process of change.

A link between trust and organizational performance has been demonstrated in numerous studies. The correlation is strong, and the leverage offered by high trust is impressive. Most studies show a two to five times productivity benefit in high trust groups over low trust groups.

Can you name any other single factor that can offer a 200% improvement in productivity?

When organizations contemplate changes, the manner in which the effort is planned, organized, announced, managed, and led has everything to do with the impact on trust.

Unfortunately, in the vast majority of cases, the changes end up having a profound negative impact on the culture just when trust is needed the most. This condition ends up undermining the change effort and leads to a documented dismal track record of almost 80% of transitions not living up to expectations.

Thankfully, failure can be avoided by taking steps right from the start of a change process to act differently and prevent problems from occurring. The old adage of “an ounce of prevention is worth a pound of cure” holds true for this situation.

If some changes in mindset can be accomplished from the earliest plans for a change, the ability to retain or even grow trust during change is possible.

My book is about how to break the cycle of change failure by focusing as much effort on the cultural integration as on the mechanical parts of the change process.

Unfortunately many leaders have had professional training in the MBA schools that emphasizes the mechanical aspects of the change process such as negotiation, due diligence, financial valuation, or legal implications.

These subjects are critical in transitions, but they should not squeeze out the considerations of how to get people to work well together during and after the transition.

The focus on the financial and legal implications of a change are forced on center stage, and what ends up back in the wings is the fragile culture of trust between people in the organization. That is a problem, because the end result is a change effort that works well on paper but often fails to meet expectations in the real world.

The book contains dozens of areas where leaders unwittingly make errors in judgment which undermine the changes all along the way. By following a parallel path that works just as hard on the culture as the deal, leaders can greatly improve the odds of success.

I will provide a series of articles on this blog over the next few months that look at different aspects of the change process to suggest pragmatic antidotes to common problems.

Investing more leadership attention to the culture early in the change process will have a profound positive impact on the success rate.

I hope you find the tips I offer in the book and in future articles to be helpful at preserving trust in your organization. Nothing could be more vital for your ultimate success.


Who is “On The Bus” After a Merger?

December 11, 2010

Whenever two groups merge, there is a change in personnel and positions. Typically, there are fewer slots after a merger, so some staff are let go. Often, this winnowing process goes all the way to the top of the organization. A huge conundrum for the health of the business is how to keep the right people on the bus and get the wrong people off the bus.

During the assimilation process after the merger is announced, there is normally an evaluation period where top brass figure out how many positions there are going to be and then seek to fill those slots with the best qualified individuals from the talent pool of the combined groups. After the selection process, the remaining people will receive some painful but expected news.

This process is what appears to be the ballgame with personnel after a merger. Actually, I believe the real ballgame happens long before the official selection process, and top management had better do the right things then or some of the most talented individuals will not be in the crowd when the selection process begins. Long before the announcement of a merger is made, people in both camps are at least vaguely aware that something is afoot. In most situations, the rumor that there is going to be some kind of a major discontinuity has been circulating for months.

People in both organizations are justifiably nervous when facing some unknown hazard that is bound to create casualties. In my own experience, I have noticed that even the highest performing individuals are unnerved enough to start questioning their longevity, at least to themselves. The very best and most marketable individuals have a good chance to land comparable or superior positions in other, more stable, organizations. So, the most valuable people start looking for alternatives long before any forced ranking of staff members takes place.

On the flip side, the least talented people or the ones who are lazy or have interpersonal issues recognize that they are vulnerable. They also realize they are not going to find many opportunities on the outside, so they hunker down and prepare to defend themselves through legitimate or fraudulent tactics. Their objective is to stay in the game if at all possible, and they will do whatever is necessary to ensure that when the music stops they are near an empty chair. This may involve some unfair pushing and shoving.

One of the very first actions top management should take is to identify the critical few people they need to be around for the afterlife in the merged configuration. These people need to be informed that their place in the new order is assured, and it will mean a better existence for them. Of course, that is a tall order because the truth is that there are far too many unknowns in the months running up to a merger to legitimately assure anyone of anything.

In this situation, some kind of contingent bonus may be helpful. Stock options are often used as a tool here because payment can be substantial, but it only occurs when the organization itself thrives. People will think twice about leaving a $100K job to go to a new organization if they can see a potential $1M payout in stock options if the merger is a success.

The downside of any bonus incentive is that of fairness. Basically, top management is singling out a few of the best people (in their opinion) to incent to stay. That will unnerve the mass of people in the middle who believe they are contributing just as much to the prior organization as the fair-haired individuals, but are not receiving an incentive to stay. That sends a chilling signal that impacts motivation and productivity for the majority of people at the very time when the due diligence process is examining the numbers for valuation purposes. This problem can be mitigated if the performance evaluation system in place is sensitive enough to already single out the top 5% of individuals, so any retention incentive can be thought of as an adjunct to the normal performance management process.

Monetary incentives are not the only tool managers can use to allow key individuals to know they are valued during a merger. Simply having a candid discussion about the situation with individuals can go a long way toward having them want to stay on the team. Of course, it is always a good strategy to let the best people know they are valued, but the benefit of doing it is amplified significantly during the months running up to a merger announcement.

Another idea is to have people serve on planning groups that are charged with assembling data for the due diligence process or in developing the communication roll out. When individuals are included in active work to accomplish the merger, they instinctively know there will be a place for them once the dust settles.

Having the right people on the bus following a merger is the most critical consideration governing the success of the effort. I believe it is essential for top management to take steps to ensure the best people stay. These actions need to be accomplished during the conceptual phase of a merger and not while the formal integration process is unfolding.


Merger Miseries 8 – Scrambled Cultures

November 14, 2010

This is the eighth in a series of articles on the trials and tribulations of mergers and acquisitions. This episode concerns the blending of different cultures into a homogeneous new culture. Regardless of the size and scope of an M&A, or even an internal restructuring, there needs to be a successful merger of two distinct cultures to realize the benefits. Managers often assume this will happen naturally over time, so they give this aspect little attention when planning the merger. WRONG! Achieving a stable culture where people are at least supportive if not enthusiastically driving a singular mindset is the most significant challenge for most change efforts. Do not assume things will work out; instead, take a highly proactive approach to defining a new culture.

In every case, even when the action is described as a merger of equals, one group will feel they have been “taken over” by the other. Curiously, in many instances, both groups feel they have been taken over because employees in each former group will need to modify procedures to accomplish the union. Usually, one of the parties is assumed to be in the driver’s seat, so it is the other party that needs to endure the bulk of changing systems.

Lack of trust and genuine animosity lead to resistance when it comes to blending the two groups into one. It is common to have the conflict occur as passive resistive behavior. People will have the appearance of agreeing, but subversively undermine the other group however possible. This kind of “we – they” thinking can go on for years if allowed. So what actions can management take to mitigate the schism and promote unity? Here are a dozen ideas that can help.

1. Start early – Do not let the inevitable seeds of doubt and suspicion grow in the dark. Work quickly after the merger is announced to have teambuilding activities. Openly promote good team spirit and put some money into developing a mutually supportive culture. Good teamwork is not rocket science, but it does not occur naturally. There must be investments to accomplish unity.

2. Have zero tolerance for silo thinking – This is hard to accomplish because human beings will polarize if given the opportunity. Set the expectation that people will at least try at all times to get along. Monitor the wording in notes and conversations carefully and call people out when they put down the other group. This monitoring needs to include body language. Often rolling eyes or other expressions give away underlying mistrust.

3. Blend the populations as much as possible – Transplant key individuals from Group A with counterparts from Group B. If this is done with care, it will not take long for the individual cultures to be hard to tell apart. Sometimes the transplanting process is unpopular, but it is an important part of the integration process.

4. Use the Strategic Process – It is important to have a common set of goals and a common vision. If the former groups have goals that are not perfectly aligned, then behaviors are going to support parochial thinking. When conflicts arise, check to see if the goals are really common or if there is just lip service on this point.

5. Reward good teamwork – Seek out examples of selfless behavior from one group toward the other and promote these as bellwether activities. Verbal and written reinforcement from the top will help a lot. You might consider some kind of token award for outstanding integration behavior.

6. Model integrated behavior at the top – Often we see animosity and lack of trust at the highest levels, so it is only natural for the lower echelon to be bickering. People have the ability to pick up on the tiny clues in wording and body language. The leaders need to walk the talk on mutual respect.

7. Co-locate groups where possible – Remote geography always tends to build polarization in any organization. If merged groups can be at least partially located under one roof, it will help to reduce suspicion by lack of contact. If cohabitation is cost prohibitive, it is helpful to have frequent joint meetings, especially at the start of the integration process.

8. Benchmark other organizations – Select one or two companies who have done a great job of blending cultures and send a fact finding team made up of representatives from each group to identify best practices. This team can be the nucleus of cooperation attitudes that can allow unity to spread through the entire population.

9. Make celebrations include both groups – Avoid letting one group celebrate milestones along the way while the other group is struggling. Make sure the celebrations are for progress toward the ultimate culture instead of sub-unit performance.

10. Align measures with joint behavior – Make sure the measures are not contributing to silo thinking. If the goals are aligned for joint performance, have the measures reinforce behaviors toward those goals. Often, well intentioned measures actually drive activity that is directly opposite to the intended result. One way to test for this potential is to ask, “what if someone pushes this measure to the extreme – will that still produce the result we want”?

11. Weed out people who cannot adjust – A certain percentage of the population in either group are going to find it difficult to get over the grieving process. Identify these individuals and help them find roles in some other organization. It will help both the merger process and the individual. On the flip side, identify the champions of integration early and reward them with more exposure and more span of control.

12. Create incentives for the desired behavior – People should be encouraged in every way to act and think in an integrated way. This can be encouraged by having the incentive plans pay out only if both units perform seamlessly.

The road to a fully functioning integrated culture can be long and frustrating. By following the ideas given above, an organization can hasten the day when there are few vestiges of the old cultures, and people feel a sense of belonging to a single new order.


Merger Miseries 5 – Mini Mergers

October 4, 2010

This is the fifth in a series of articles on the trials and tribulations of mergers and acquisitions. The topic for this episode is “mini mergers.” Every day in the news we hear about the mega mergers between giant organizations like airlines and automobile companies. These consolidations typically involve billions of dollars and take many months or even years to accomplish. The moves are the subject of constant Wall Street and popular business press analysis. In reality, there are literally thousands of smaller mergers, acquisitions, or restructurings that go on every day. These smaller but more numerous actions, when taken in aggregate, dwarf the mega mergers in terms of total impact, even though they do not get as much attention.

Any activity to change the way a unit goes about accomplishing its mission is a form of change that involves restructuring the roles of people. The activity goes under a wide spectrum of names, like: reorganization, merger, restructuring, downsizing, acquisition, reengineering, work-out, process improvements, Lean Six Sigma, and layoffs. Regardless of the name, each of these efforts is designed to make the resulting organization more effective than the prior pieces. The problem is that in roughly 80% of the cases, the activity consumes more resources than planned and is far more troublesome than anticipated.

Unfortunately, the tendency is to focus on the mechanical nature of the action with little planning on the consequences on people. For example, if a merger of two groups within a corporation is contemplated, far more energy typically will be spent on the timing of the move and the layout of the new office than on what changes will need to be made to the way people work together during and after the merge. The procedural issues and training needed are usually given short shrift until the mechanical merger is consummated, which misses an excellent opportunity for people to become invested in both the process and the outcome. The typical sequence almost guarantees a lapse in customer service and great consternation among the workers while managers try to sort out the mess.

There is a solution to the problem. It is to begin by addressing why we need to do something in the first place. If we need to be more competitive in order to compete with a new worldwide market, then start by discussing this problem with the people in the organization. Take the time to solicit creative ways to solve the problem that may or may not involve a restructuring of units. Let the individuals affected come to the conclusion that if the organization is to survive at all, something significant needs to be done.

Then, when the topic of combining units comes up, it is born out of involvement with the impacted groups. They can help configure the mechanical set up of the merged entity, and also begin to plan for the impact on people long before the actual event. They can set up groups whose job it will be to take care of customer issues with “one voice” while the organizational turmoil is going on. They can establish training programs for individuals who need to learn different functions. They can help people who are impacted find a path to a viable future inside or outside the old organization. In other words, the impacted people can and should help figure out what to do before the mechanical merger begins.

Involving people is often avoided out of fear that impacted people might get angry and start some forms of sabotage. It is true that there is some risk of that kind of problem, but it is far better to take this risk with eyes open and manage it intelligently. Reason: The vast majority of individuals will act responsibly when they are treated like adults and given some ability to shape their own destiny. Even though considerable pain is involved, a company can get through a transition phase quickly and with grace if top management allows people at all levels to be part of the design process.


Merger Miseries One

September 6, 2010

This is the first in a series of articles related to building trust and transparency in merger situations of organizations. This particular article focuses on how the complexity of doing a merger is often downplayed in organizations and gives one possible antidote that CEOs should heed before jumping head first into a merger.

Why are the hassles underestimated?

Mergers are usually considered in an attempt to pool strengths and eventually drive costs down to improve competitive positioning. It is normally envisioned as a way to survive, but frequently turns into a way to commit suicide.

Top managers who study the impact of a merger can readily see the tangible rewards, and the benefits look seductively attractive. The costs and hassles seem to be manageable, so not a lot of energy is spent on an organized campaign to mitigate potential negative aspects. The upfront cultural work is often neglected as managers just announce the merger and tell everyone to “work together and get along as new processes are invented.” This typically gets the venture off on the wrong foot, and it gets a lot worse before emotional bankruptcy, if not physical bankruptcy is reached.

Consultants hired to smooth the process focus on the benefits and the quick shot of cash from doing the merger. Their remuneration is tied to an efficient and speedy process, so they spend little energy on the blending of two cultures until the fan becomes very soiled. This pattern is so stubbornly consistent that one wonders why more caution is not exercised. Some groups have found ways to do mergers right, and I hope to add some value with tools and ideas that can contribute to the art.

One bit of advice is to be more conservative during the initial planning phase. First, assume your calculations of the benefits are order-of-magnitude correct, but quadruple the estimated time it will take to accomplish them. Next, take the projected investments required to achieve the benefits, as best you can estimate them in advance, and multiply that number by 10. Finally, take the best intelligence on how this merger is going to negatively impact customers and suppliers, and bump that up by a factor of 5X. That might be a reasonable approximation of a business case for the venture. If the merger still looks viable under those circumstances, then going on to the next steps is probably worthwhile. If the figures based on this more realistic scenario cause you to gulp, better read up on some of the horror stories of merger disasters in other organizations and check your medicine cabinet for antacids and tranquilizers.

Acquisitions gone bad are not hard to find. For example the Daimler-Chrysler merger in 1998 was a classic debacle that cost Daimler nearly $36 Billion over a decade. Just as a reality check, my calculation reveals this to be about $10 Million a day for 10 years. Large scale disasters like this are plastered on the front pages of business periodicals. Unfortunately, the more pervasive problem is the thousands of unsung smaller-scale disasters that go on continually within organizations of all sizes and types.

I am not saying all mergers are failures compared to intentions. I am sure there are some positive surprises as well. My thesis is that the track record does not indicate a positive result is most likely. In the coming weeks, I will be sharing many different aspects of the merger and acquisition business. We will look at the issue in both large scale mergers and in the tiny restructuring efforts that go on daily in most organizations. I would appreciate any comments, suggestions, or ideas you have along the way.