KEY POINTS:
Many chief executives who are considering a restructure and headcount reduction will now be asking the human resource department to provide some data and science on who should go or stay.
Marketing and finance departments have been providing this level of sophisticated data for years. Marketers have been slicing and dicing their target market in order to position specific products for certain market niches. This is called "market segmentation", and can be achieved through the extensive collection and analysis of market data of varying types. The techniques and tools of marketing are now so well refined that marketing, like finance, is considered a "decision science".
Human resource departments should by now have this level of sophistication in their data. This is sometimes called human resource metrics, and a more targeted use of this data is talent segmentation.
As with marketing, talent segmentation tells the CEO who are the critical employees, and which ones have the most value to the business.
This talent data is key in a restructure because the CEO wants to ensure the firm keeps the right people. This is essential if the company is going to continue to perform during the tough times, and take advantage of the rebound. Tough economic conditions are when smart, flexible people come into their own. They can think their way out of tight spots, finding new ways to increase revenue, or decrease costs.
In small companies (say, fewer than 100 people) the decision process on who stays and goes is relatively simple. The CEO will have maybe four to six managers and each of them will know the talents of the people that report under them, and can make decisions on who should be let go.
But in organisations with more than 100 employees, some metrics on employee performance, and some talent segmentation strategy, will be required if the right decisions on people are to be made.
At the minimum a CEO should be able to ask, and be given, clear data on high performers, and high potentials. There are other forms of talent segmentation, but this is the most common.
The easy decision is that those that are both (high performers and high potential) should stay, and those that are low in each category should go. However, in many organisations today, this low/low pool is very small, and the organisation has to look to the other groups. The tricky part, then, is what to do with the low performer/high potentials, and the high performer/low potentials.
The former are often new hires, who are not paid much but are seen as having the potential to increase their skills and contribute more in a short space of time. The latter have been with the organisation for some time and do a fantastic job, but have reached their ceiling in terms of performance.
Each CEO and company will choose differently in how they use the high performers/high potential matrix, based on their position in the market, and their medium to long-term strategy. The key point is that the decision process will still be dependent on having the data to populate a matrix such as this.
Although many organisations have some form of talent management, it has not often reached the sophisticated level required to make these decisions.
The goal for organisations must be to have in place the people data and metrics to a similar level expected of the marketing and finance departments. A talent management process is essential to ensure training and development is invested in the right people - it is also essential in restructuring to ensure the right people are kept.
If the company has not invested in some talent management process in the last two to five years, then it will be flying in the dark.
The second point for CEOs to consider is that if a restructure is required, they should use this as a catalyst for change. A burning platform is a great motivator for employees to get behind a change, and resistance will be far less than in more buoyant times. The change the CEO is seeking may be cultural, it may be process change, it may be the reward systems, it may be structure, it may be all of these. Whatever the objective, a restructure is the right time to push these through.
One would hope that most organisations have the metrics in place to guide decisions if a restructure is required. If not, then they will need to rely on their managers to make the decision this time, but should now start to put in place a human capital/talent management strategy and process. And if the winds of change are going to blow in your organisation, use that as an opportunity to drive some permanent improvement rather than merely dissolution of roles.
Don Purdon is an Auckland-based management consultant.
