My daughter’s wedding was last November. As I took in the success of the event I reflected on the 12 months prior we spent in planning and finally execution. The costs associated with the whole thing rippled through my mind. While I was thrilled to give her the wedding of her dreams I was also pleased to have her “off the payroll”. Although many have told me they’re never fully “off the payroll”-- let’s call it long-term severance.
What’s the correlation? Well, when owners & operators look at their firm’s performance and determine if your expense base is straining your ability to succeed; the parallels become clear.
During a RIF, there are four things to think about that can impact your business.
FACING A REDUCTION IN FORCE
While my current focus is the alternative asset management world, the challenges of balancing a firm’s income with a proportionate expense base is universal. It’s been a difficult two years for many funds. It’s caused them to take another look at their drawdowns as investors think twice about leaving assets in the fund. If there’s a combination of drawdowns and redemptions a fund is left with the very difficult dilemma of cutting expenses. The first place and often the obvious place for reducing expenses are staff; which is typically the largest expense category and the easiest target. It’s an extremely difficult decision and well should be. The staff joined because they believed in the Founder or firm or the Fund’s reputation that created an implied assumption of loyalty that has been generated both ways.
The conundrum is if you reduce your workforce can you continue to operate in a way that allows you to run your firm without judgment errors; the best talent; or the checks and balances needed on the operational side to ensure compliance and accuracy. The first group looked at is the lower paid staff. The assumption is they’re expendable and the work they do is not as critical or can be outsourced. The truth is, eliminating a large amount of these positions rarely makes the dent that’s required. There are many that think about this very strategically but for some who may not have the luxury of time or having someone to guide them, here are some thoughts for you to consider.
Those that depart, those that remain, those that will come and your brand; holding these four components equally important will make an extremely difficult event as successful as it can be.
After many years in many companies working with many employees, managers and leaders I've been given opportunities to experience how to and how not to do many things. I will attempt to present them as lessons learned and welcome your comments.