Categorized | Workplace

Downsizing Detours

Posted on 07 April 2009

Downsizing, rightsizing, reorganizing, reduction in force. No matter what it’s called, the result is the same if your employer is about to go belly up and decides your salary will help cut costs and increase profits.

How did this happen? Just two years ago, your organization was growing, highly profitable and seemingly stable. You and your colleagues reveled in the fact that you were making more money than your parents had ever seen. Then, bam! The bottom fell out, with the company announcing a possible shutdown if things didn’t improve.

Warning Signs
Most company closings don’t happen overnight or without warning. Still, most victims of downsizing and shutdowns don’t know what hit them until it is too late. Yet, there are many warning signs of a company in trouble. Stakeholders, especially employees, just have to know what to look for and where to look. However, personal feelings sometimes cloud the handwriting on the wall. Following is an example:

Most victims of downsizing and shutdowns don’t know what hits them until it’s too late.

Steve, a manufacturing maintenance mechanic, had worked for his company for five years before the bottom fell out. “First, they announced the merger, which was totally chaotic,” he said. “Then little things started to change. And there was less and less overtime. Our focus began to shift from turning out a quality product to getting it done fast and cheap. My wife warned me that something was amiss; but my boss assured me my job was safe. So I convinced myself that they valued me too much to get rid of me,” Steve said. But the Pink Slip Fairy eventually paid him a visit.

If you suspect your company might be headed downhill, look for common red flags. Consider whether your company is experiencing:

  • Profit losses
  • Difficulty meeting payroll
  • Increased turnover
  • Abrupt changes in senior management
  • Late customer deliverables and/or lesser quality products
  • Vague growth plans
  • Chaos and disorganization
  • Obvious problems being ignored by management
  • An immediate shift in the organization’s “energy”
  • A sudden increase in closed-door meetings

According to Lisa Ryan, managing partner with Fifty Fourth Street Partners, a management and business consulting firm, “Financial indicators are the best signs of whether a company is likely to close or downsize. Unfortunately, the average employee usually doesn’t have access to this information. Which means the higher-ups have the advantage and can be more proactive about their career choices than those that are lower in the organization and therefore more susceptible to downsizing.”

Ryan adds, “It’s not enough to watch your company’s financials. You also have to pay attention to what’s happening with your competitors. If your competitors are struggling, chances are your company is not that much different. So, unless you can point to a distinct difference between your company and its competitors that will put you at an advantage, there might be cause for concern,” added Dale Johnson, managing director at Fifty Fourth Street Partners.

Another indicator is turnover. But Ryan is careful to warn people to study trends before they start asking, “Am I next?” Turnover is often seasonal or cyclical, and may not mean much by itself.

“The important thing with turnover is the nature of who’s leaving, not necessarily how many are leaving,” Ryan said. “If excellent performers are being let go and more importantly, not being replaced, that’s a strong indicator that something might be wrong. Also, look outside your four walls. Are the company’s other sites losing people too?” she added.

Another good, but subtle gauge is the human element. Mark Cameron, a principal at Sand Hill Capital, a firm that funds technology companies, calls it the “energy” of the place. “People should pay attention to surroundings, what people are saying, how they’re feeling, body language. We don’t use our intuitive faculties as much as we should,” added Cameron.

Where to Look
“We trade our lives for our jobs, so we have to be proactive about the stability of where we work. It’s up to us to access that information by interviewing prospective and current employers,” said Cameron. He recommends talking to customers and managers, studying Dun & Bradstreet( financial reports, or accessing Yahoo Finance (, where you can download free annual reports of more than 3,500 publicly traded companies.

As Dale Johnson says, “Even if you don’t have access to financials and your company is not publicly traded, you still need to look at those more subtle indicators and trust your gut feelings. If your stomach is telling you that things aren’t quite right, they probably aren’t.”

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