Cutback Planning

There are a great many companies, public agencies and not-for-profit organizations facing severe revenue shortfalls.  They  have to shrink their operations, find more efficient ways of doing what they do,  or identify new revenue sources.  Too often, their leaders fail to realize that they can use a consensus building approach -- one that emphasizes engagement, transparency, and accountability -- to accomplish these goals. 

A consensus building approach (1) involves all employees, managers and even clients in determining which objectives and responsibilities are most important; (2) uses performance metrics to determine what's working well and what's not; (3) clarifies the decisions that management must make and helps to justify its actions; (4) capitalizes on current challenges by figuring out how to expand and not just contract; and (5) emphasizes organizational learning. 

Engagement:  Cutbacks are demoralizing.  Employees who keep their jobs, are upset when co-workers are let go. If even you survive a round of budget cuts, you worry that you'll be next.  So, involving everyone in reviewing priorities, identifying critical assets and specifying cuts that will be least damaging, maintains solidarity and increases the legitimacy of the tough decisions that must be made. It helps to maintain morale after cuts have been made.  It's a lot easier to feel OK about keeping your job (while a friend loses his) if everyone has had a hand in evaluating the available options.  Management will still make the final decisions, but consulting widely is almost always worth the effort.  I'm not talking about creating a web site and asking for anonymous suggestions.  Rather, each work unit should be asked to meet, discuss and write down its suggestions: which activities (not people) ought to be retained or even expanded (as a way of generating new revenues), and which are less important.  Everyone should be required to list both, and explain why they take the position that they do. 

Transparency: When cutbacks have to be made, there's a tendency for management to circle the wagons. Lots of  "high level" meetings take place behind close doors and paranoia increases.  The consensus building approach, on the other hand,  calls for more transparency, more sharing of information, and most of all -- and an explicit enumeration of the performance metrics that will be used to evaluate performance.  If there is general agreement on what to measure and how to benchmark performance, final decisions about what and who to keep will seem much less arbitrary.  Transparency makes it easier to maintain morale and to keep working through difficult transitions. 

Accountability:  Many organizations are quick to allocate the same percentage cut across all units.  "Each division must take a 10% cut now, in order for us to live within the new quarterly (or annual) budget limits." But this minimizes the opportunity that a crisis creates to pursue reforms that may have been blocked in the past. Once everyone participates in defining the activities that ought to be retained and which can be cut, the next step should not be to spread the pain evenly.  Rather, incentives ought to be offered to any individual or group that can come up with a more efficient way of achieving a priority objective, or finding a new revenue stream. Each participant and each unit should be held accountable for doing all it can to reduce overall costs and increase revenues. A consensus building approach seeks to encourage joint problem solving, and disregards defensive arguments for maintaining the status quo.  

A consensus building approach assumes that mangers are not merely responsible for making tough choices.  Rather, CBA expects managers to engage everyone in thinking through priorities, imagining innovative ways of doing more with less or building on vital assets. CBA is as concerned about the attitudes and productivity of the workers who remain after cuts have been made as it is about making cuts. It is also as focused on revenue enhancement as it is on cost reduction.  

At the end of every round of cutbacks, organizations should review what they can learn from their experience, however painful. What might they do differently next time and why?  In light of what happened, can they identify organizational changes that will make engagement, transparency and accountability easier to achieve the next time around?