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Application

Published June 2009

How to Execute Strategic Talent Restructuring

  Susanne Kremeier

For most companies, the cost for employment is one of the highest positions on their balance sheets, and layoffs are logically the first scenario to look for reductions. Or are they? The talent leader's first questions always need to be: What strategy are we pursuing, are there benefits in changing it, and what do we need to do to achieve it? Focusing on the strategy will guide the next steps.

When facing challenging times, strategy and employees are critical. In his book Responsible Restructuring, Wayne F. Cascio differentiates between companies considering employees as costs to be cut or assets to be developed. Companies pursuing a visionary strategy with employees as the most important asset have a great chance to excel in tough times because they are likely to restructure more cleverly.

Imagine the company "Great Supplier" provides semi-finished products for business-to-consumer companies. It is hit by today's market environment and needs to react. This strategy remains: to be the No. 1 or 2 provider of cutting-edge products to its customers, generate sustainable return for its shareholders and earn the respect of the communities it interacts with.

Great Supplier wants to achieve this strategy via innovation, customer focus, profitability and talent. It also wants to live its values: integrity, leadership, respect and environmental responsibility.

Great Supplier produces three product lines: one high end, one standard and one low end, with differences in the service provided, not in the product sold. It provides technical service and joint product development with customers. The company wants to grow its business 5 percent per year, a revenue increase from $3 to $3.15 billion in 2009. But due to the economy, customers are delaying and canceling orders, so adjusted results reduce revenue 8 percent, down to $2.75 billion, with a recovery to 2008 levels by the end of 2011 at the earliest.

The leadership team has decided that since the amount of planned investments and dividend payments on top of anticipated cost is based on the increased revenue, it needs to find ways to cut costs to yield enough money to satisfy the shareholders and ensure Great Supplier's future. It looks deeply into the financial figures and notices some interesting facts missed in the past.

When looking at long-time development, the low-end product shows more stable margins than any of the others. The big difference between the low-end product and the others is the company doesn't offer technical service. Further evaluation of time, employees involved and customer mix strongly suggests there might be an opportunity for a new business model. Instead of offering three of the same product with different levels of technical service, the company decides to offer one product with different service levels.

A market environment scan proves the business case for the new model: The product is very competitive, attracting new and alternative suppliers. The company's service is said to be outstanding in the industry and difficult for anyone else to match. Estimates show this would soften this year's economic hit to a 6 percent reduction, a decrease of revenue of $180 million, and a recovery to 2008 levels in late 2010.

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