CIOZone.com - Professional Network for CIOs and IT Professionals

There's No Crying in IT: How to Make Tough Staffing Cuts

Economic times are getting tough. Orders could come down from company executives to cut headcount immediately. If IT leadership doesn't make it happen, it could be their jobs on the chopping block. Be ready to take decisive action.

Also See:
Staff Level Allocation
Total Cost of Turnover Worksheet

Executive Summary

Layoffs are being announced daily in response to worsening economic conditions. Terminating staff—especially good staff—is one the hardest things an IT decision maker will ever have to do. This research note discusses strategies for making layoff decisions within a short time frame. Coverage includes:

• Where staff fall on the cost-cutting priority list.


• The hard truth about what motivates layoffs in the first place and the role IT leadership must play.


• Two case studies of enterprises that made deep staffing cuts and survived.


• Key steps to take when deciding who needs to be cut.

Given the current economic environment, many IT shops will face layoffs within the next six to twelve months, some may even be facing them today. Regardless, when the order to cut back arrives, there won't be much notice—actions must be quick and decisive.

Management Point

An order has come down from the executives to cut staffing costs, which must result in IT headcount reductions. If IT leadership doesn't actively participate to make it happen, it could be their jobs on the chopping block. Laying off employees—especially good employees—is one the hardest things an IT decision maker will ever have to do. Unfortunately, when it comes to layoffs, there is nothing pleasant or fair about it—it's all about the survival of the enterprise.

Given the current economic environment, many IT shops will be faced with a layoff mandate within the next six to twelve months. Some will face it as soon as next week.

Be prepared. When the mandate comes, the actions required from IT leadership will be both short and long term. The initial results of short-term actions will need to be evident within three months, or in the case of publicly traded companies, before the next investor's meeting. Longer-term actions may play out over six to twelve months. When short-term actions hit, there will be little time to make some really big decisions. Key Considerations

Why Staff Must Be the First to Go

Mandatory First Steps

If cuts are required in response to broad deterioration in economic conditions, then capital expenditure should be frozen immediately in all instances and any decisions to buy must be handled on a case-by-case basis. Also, the project portfolio should be frozen and re-evaluated against the most urgent strategic mandates before any other actions are taken.

Cost reductions can come from a variety of sources, but most often inevitably lead to headcount reduction. The goal of cost reduction is to minimize expenses in one of three areas:

• People—Includes full-time and part-time staff, contractors, and consultants.


• Services—Covers internally and externally provided functions, services (and service levels), and supporting infrastructure.


• Applications—Includes in-house developed applications and customization, as well as all externally procured applications, such as hosted and COTS applications, and their associated licenses.

The time frame for making reductions and the depth of the cuts mandated will have a significant impact on which areas will be tackled first. The recent ITA Premium Impact Research report, "Opportunities — Challenges in IT Cost Reduction," found that enterprises facing cuts in excess of 5% or those that have less than three months to affect change turn to staffing and salary cuts first.

Figure 1. Cost Reduction Focus by Time Frame

Enlarge Image

Why are employees the first to go? Three months does not afford sufficient time to renegotiate vendor contracts, rework processes, pare back applications, or to pursue many other areas of cost reduction. These activities tend to take in excess of six months to execute. Labor cost reduction is the fastest and most visible way to reduce costs quickly (see Figure 1).

Longer time frames will still demand staff cuts as well, but the extra time allows for the exploration of other cost reduction measures and serves to increase confidence in the decisions that are ultimately made. The deeper the cuts required, the more aggressively staff will have to be culled. Reducing staffing costs will be a priority in most scenarios, and specifically in those that require immediate results. Even if timelines are protracted, well-planned cuts to service provision and other areas will ultimately lead to a headcount reduction. The following cost reduction techniques all result in reduced IT staffing requirements:

• Eliminating projects.


• Eliminating non-critical functions.


• Outsourcing.


• Improving processes.


• Reducing service levels.


• Standardizing IT.


• Centralizing and consolidating IT.


• Freezing and retiring applications.


• Reducing planning and engineering activities.


• Eliminating positions throughout the enterprise.

Elimination of staff, if not a direct action, will be the indirect result of cost reduction activities and cannot be avoided. This is the hard truth, but it gets even harder. While staffing cuts bring the highest gain, they also bring the highest pain:

• 
  
• There is only one goal: prevent enterprise failure. When layoffs come, survival of the enterprise is the ultimate goal. The death of the enterprise is the leading risk, and all efforts must be made to mitigate this risk.


• Good people have to go. Often it's the good people who put applications and systems in such good operating order that will have to go first. Well-running systems require less babysitting, so the very people who brought such high levels of effectiveness and efficiency are no longer required.


• Life for those left behind will be rough. Those who still have jobs at the end of the day don't have as many options. Morale will be tested not only because colleagues have been shown the door, but also because those left behind will likely take on more tasks and work longer hours to pick up the slack without additional compensation.


• You reap what you sow. If an investment has not been made in building a good relationship with the CFO or other members of the executive, then IT leadership's ability to present non-standard cost-cutting alternatives will be greatly impaired. Any efforts to explore alternatives to staff reduction will be seen as a frustrating delay tactic sprouting from self-serving motives instead of as innovative.


• There is no room for sentimentality. Being objective—and even ruthless—is a heavy burden to bear. If an IT leader can't or won't do the job required, then s/he should be prepared to resign or to be let go.



Next: Tale Of Two IT Departments




Prev - Next >>