Restructure Your Business the "Right Way"
Updated: Dec 13, 2019
In times of recession and global market pressures, companies resort to extreme actions to weather the storm. This can be a new experience for a whole generation of leaders.
Many managers have never had to shrink their operations or work-forces drastically, and as a result common mistakes are made. Assumptions are that they have to be the tough and make decisions that afterwards they can delegate the implementation to others with one overriding order: “Go fast!”
When leading plant closures and business transfers, this type of approach makes no sense. It can destroy shareholder value. I have more than 30 years experience in industry, much of it in turnaround situations. I’ve come to believe that leaders have to use “soft approaches” as well as “hard approaches” to be successful.
Hard decision making is necessary. Leaders cannot shy away from deciding to close or shrink an operation, but they must also be heavily engaged in ensuring that employees, customers, suppliers, and communities are treated with consideration and compassion.
Having lead plant closures and business transfer projects in 3 different business sectors and morality aside, such behavior is good business. All too often the negative impact of a closure on the surviving business is underestimated.
If employees who lose their jobs are treated impersonally, unfairly, or without respect, the productivity and loyalty of their remaining colleagues will suffer, recruiting new talent will be more difficult and customers and suppliers that feel burned by a shutdown may retaliate against the rest of the company by diverting business to competition.
Unfortunately, I’ve been involved in many cutbacks and closures, in automotive, chemical coatings and packaging industries, these experiences taught me the right way to close an operation.
Learning by Doing
My first experience of plant closures was at the beginning of my career. I was working for a very paternalistic company, and the cuts marked a radical change to what was normally a very safe traditional organisation with 100 years of history.
The company really set the tone for the site closure very professionally. They announced,
“We’re must be honest with our employees. We’re going to tell them what’s happening. We’re going to give them advance notice even though we aren’t obligated to do so under the union contract. We will make sure that our customers are served.”
Accordingly, employees were told of our plans over 12 months before we closed the plant. We explained that we needed to build up enough inventory to serve our customers during the transition and that we couldn’t afford to have workers leave or to let productivity and quality decline. The work-force were helped with re-training and to find new employment.
The result: Rather than our people leaving their brains at home, they delivered the highest safety, quality and productivity in the companies history. Customers were appreciative and stuck with us after the closure giving us future business.
This experience was in the mid-2000s. Sine then, I have used this approach approach to address many major business challenges.
I have taken assignments in businesses that are in free fall. Organisations that have far too much capacity and no common systems, processes and poor leadership.
Manage the closure or layoff like a project.
Whether expanding or reducing the capacity or even closing your business, you need to implement project-management techniques.
Considering how much money, credibility, and reputation can be at stake, it doesn’t make sense.
Appoint an experienced, full-time project leader and a strong team.
Typically, a plant closure or restructure is heavier than the plant manager’s role. So although the project manager must work closely with the plant manager, he should report to the CEO or division manager.
The role can be an outstanding developmental opportunity high-potential performer's and provides managers with a chance to watch people grow, to coach them, and to determine what they are really made of.
The project leader should have sufficient experience, authority, and credibility in the organization to address the interests of all constituents: the company, employees, customers, suppliers, and communities.
The project leader should assemble a team of people with the special expertise that’s required.
Use the techniques of conventional project management.
1. Define stages from the planning phase through the closure.
2. Assign clear responsibilities.
3. Establish criteria that must be met to get to the next stage.
4. Conduct regular reviews involving senior leaders.
Customer and Supplier Impact
If you’re consolidating operations, you might want your customers to agree to transfer their business from the plant being closed to another factory. If a customer conducts business with several units of the same company, it may retaliate against other units if a shutdown leaves their business at risk.
Make sure they are informed and consider their needs.
You do not want your customers learning in the newspaper or on the internet of your plans to close an operation.
1. Design and structure and customer and supplier communication brief.
2. Call or visit the main stake-holders prior to any announcement.
3. Design, agree and implement a transition plan.
4. Offer a viable alternative solution.
5. Keep out and safeguard your suppliers and customers from competition.
6. Calculate the economic impact of business loss.
7. Consider the cost of poor customer and supplier relationships.
8. Provide regular updates to avoid confusion and reduced confidence.
Treat employees the way you want to be treated.
Reducing a workforce is painful, but you can do it in such a way that people will say, “You know, I once worked for Company X. I didn’t like the fact that they shut my plant down, but I still think it’s a good company.”
Address “What does it mean for me?”
Employees have a right to be treated as adults.
1. They should be told why they are losing their jobs (reduced volume, market changes, new location, productivity and quality issues).
2. How the closure will affect them (in terms of timing and severance package). 3. What you will do to help them (Life after closure).
Communicate, communicate, communicate
Studies say that people need to hear a message at least six times to internalize it.
1. The shock of the initial announcement will prevent employees from absorbing everything you tell them at that time.
2. Explain that the decision is being made for the sake of the overall business, not because the people who are leaving have done a bad job.
3. Follow up with both written and oral communications.
4. Keep people constantly informed along the way.
5. Counter the rumor mill with frequent group communications.
6. Deliver messages that are consistent and positive but grounded in reality.
7. Be clear and concise with your communication.
8. Be sensitive to any language barriers.
Be visible and personal.
A closure or a downsizing is not an excuse for leaders to go into hiding.
1. Get to know your people.
2. Lead by example and be visible.
3. Be honest and answer all questions truthfully, no matter how uncomfortable.
Downsizing is not an excuse for leaders to go into hiding.
If the operation being closed or downsized is large or historically important to the company, the CEO should make at least one visit. Other local executives should be visible from beginning to end.
1. Employees’ accomplishments and contributions should be recognized.
2. Don’t assume that your managers all have the necessary communication skills.
3. Work with the HR department to train them in advance.
4. Serve as a model yourself, coach the managers who need help, and
5. Ask senior managers who are good communicators to do the same.
6. Set the tone - The leader should take personal responsibility for the organization’s behavior.
Honor company commitments.
The company’s severance policies regarding health care, retirement, insurance, and outstanding bonuses should be explained when a person is hired and should be included in the employee handbook. The company should feel obligated to adhere to those policies. If any of them are changed, employees should be informed at the time—not when they are told they are losing their jobs.
Help people find jobs.
Consider affected employees for opportunities at other locations in your company or offer them contract work. Hold job fairs and help them write effective CV's and learn how to leverage their personal networks.
Put yourself in their shoes.
How can you know whether employees are being treated with dignity, fairness, and respect?
1. Attitude surveys throughout the shutdown or layoff process.
2. Implement regular feedback forums.
3. Encourage and facilitate regular Q&A working communication sessions.
If you’re going to shut their facility down or downsize the workforce, everybody has to have a common platform of understanding. If it’s not provided, you’ll create chaos and lose a lot more than you gain.
Focus on Safety, Quality and Service Levels.
These are three more reasons to treat employees of an operation with respect.
1. Leaders should regularly remind everyone of the importance of safety, quality and service levels. Keep measuring and celebrating results.
2. Leaders should practice what they preach.
3. Keep the company standards high to provide superior results.
4. Use appropriate incentives to retain critical employees (Absence, Lost Time Accidents, Quality, Waste, OTIF)
5. Don’t lose that knowledge or capability during the transition.