Janet M. Kelly, Ph.D. Department of Accounting Center for Executive Education The University of Tennessee

Resources are declining but demands for service are not. In fact, they may be increasing. Managers must downsize and fulfill their service obligations. Finance staff are often charged with identifying the needed reductions, but they rarely have the information they need to make good decisions.

 Six basic tasks in the cutback environment  Five best practices for cutback management  Break  Case - Managing Cutbacks at the Washington State Department of Social and Health Services  Debrief

 Deciding what to cut  Maintaining morale  Attracting and keeping quality people  Rallying key stakeholders  Creating opportunities for innovation  Avoiding disasters

 Across the board cuts punish the efficient and effective  Good decisions are made in an open, systematic process involving employees and stakeholders  Guiding questions What are our principles, vision and values? How well are we performing?  Do we understand our program and service outcomes? What would happen if a particular service were reduced/eliminated? Does this fiscal environment present opportunities that we could exploit?

 In a survey of senior managers of downsized companies, 74% reported that morale, trust, and productivity suffered after downsizing (Cameron,1994)  Downsizing itself may not be the problem (Nelson,1998) “The real problem is that many organizations don’t plan for downsizing. They just reduce their headcount, neglecting to figure out how they’re going to move forward in their new, ‘leaner and meaner’ environments. In such cases the most important element in downsizing, both public and private, is ignored – the survivors.”

Economic Downturn Rumors of budget cuts Uncertainty about job security Turmoil Momentum is lost Fear of making decisions Brain Drain Highly skilled and mobile leave Those who remain go into defensive, survival mode Commitment Loss Survival, security needs now paramount Productivity, customer service decline

 Identify stakeholders Recipients, providers, advocates, critics  Listen to them AND work the numbers  Most of the time they won’t help you identify savings They are likely to turf protect  Even if they won’t help identify savings, the buy-in benefits from an inclusive process are real

 We are more loyal to our processes than our outcomes  Fiscal stress can help managers focus on what they are achieving rather than how to maintain the status quo Fierce resistance to change can be surmounted by “hard times thinking”  Setting priorities  Streamlining  Rightsizing

 Downsizing can result in long-term decline. Cameron (1994) found significant predictive relationships between the approach to downsizing and deterioration of the organization after downsizing.  The worst mistakes Downsizing by attrition and hiring freezes Piling more work on remaining employees (no work redesign or reduction) Changing the reward and appraisal systems by eliminating cost-of-living increases and/or mandating salary freezes Suspending ongoing efforts to improve quality

 Systematic planning and analysis prior to downsizing  Incremental implementation of downsizing  Increased communication  Increased employee participation and involvement in downsizing

 Ongoing strategic planning process with clearly articulated mission, values, core competencies and prioritized goals and objectives.  The information gathered as a part of good strategic planning process is precisely the information managers need to anticipate and prepare for the future and make good judgments about the allocation of scarce resources.

 Use a variety of cost cutting measures, not short- term reductions in headcount  Use performance measures as the basis for identifying areas that need improvement and for tracking progress  Tailor the reward and recognition system to the new organizational goals and priorities rather than leaving them unchanged or eliminating them to save money  Maintain momentum, morale and support by planning small wins in those areas where changes can be made quickly (“low hanging fruit”)  Communicate and celebrate progress

 Human resources are an asset, not a budget line item  Use downsizing as an opportunity for employee growth and development  Over communicate. Ensure that there are frequent, consistent, and honest communications to all employees about every aspect of downsizing.

 Involve employees in, and hold them accountable for, the identification of changes that should be made and the implementation of those changes.  Involve key external stakeholders and maintain good communications with them.  Present downsizing as an opportunity for innovation rather than a threat. Set a positive tone, and don’t respond to a negative and defensive attitude by adopting it yourself.

Good cutback management is good management. These recommendations strengthen organizations during good times as well as sustain them through bad times.