The decision of what you downsize is less important than how you downsize. The critical factor in times of economic distress is maintaining the confidence and morale of those who still remain and must be fully committed in order to enable the firm to survive and thrive. They will surely be watching closely to see how those let go are treated. The more resources -- both financial and human -- that you allocate to helping people make the transition to the rest of their lives, the more the people who are left will hang in there and perform at a high level.
I know of an organization in the pharmaceutical industry that just laid people off by e-mail! Employees who had been working at the company for decades were fired through their inbox! There is no doubt that this company will pay a huge price for such an insensitive move.
The other issue is having the courage to view downsizing as an opportunity to make tough choices that are easy to avoid in good times. Such choices include giving up outdated product lines, eliminating silos, pushing responsibility and accountability down deeper into the organization, and creating economies of scale in shared functions. All of these strategies reflect seeing a crisis as an opportunity.
I have recently been working with some school systems and have seen both ends of this spectrum come into play in different systems. The City of Los Angeles is facing exactly these kinds of choices right now, as I am certain others places are as well. Observing the recent actions taken by these school system has led me to believe that too often -- especially in government -- lazy, across-the-board cuts are employed under the guise of "fairness" to avoid making real choices about what is essential and what is expendable.
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