Mounting Pressure to Act
CEO Lothar Hoss and Managing Partner Dr. Wolfgang Dannhorn discuss common risks and mistakes associated change processes and the right strategy for successful workforce restructuring.
Mr. Hoss and Dr. Dannhorn, you advise companies that are forced to undergo difficult transitions and to lay off employees. What makes these situations so difficult?
Hoss: Many of the enterprises find themselves caught up in a transition, and are essentially looking for the best approach to workforce restructuring. Lacking a detailed plan that extends beyond the purely legal issues, they have no clear idea about how to proceed.
Dr. Dannhorn: A resulting state of uncertainty is likely to have already manifested itself. Conflicts are likely to have surfaced and intensified. And the pressure to act will have mounted significantly.
How do enterprises get themselves into such a quandary in the first place?
Hoss: They call on us for various reasons. Some need to strategically reposition themselves on account of market forces or the emergence of new technologies. Others are seeking to manage a solvency crisis or to integrate an acquisition into a new organizational structure. These changes are invariably associated with a need for smart workforce restructuring.
You operate in the capacity of experts for workforce restructuring. Wouldn’t it be better to call a spade a spade, and rebrand yourselves as layoff specialists?
Hoss: No, that would miss the mark. For instance, we often deal with transformations that are accompanied by the use of new technologies. Here we also have the aim of helping employees to acquire the necessary qualifications for new jobs. As a matter of fact, however, employees are generally afraid of losing their jobs and facing the consequences a layoff would have on their personal lives. We take that very seriously.
Dr. Dannhorn: That’s why we seek to establish clarity and to introduce orderly procedures as quickly as possible. The focus here is on three tasks: finalizing a strategic workforce transition, retaining key employees and securing the smooth implementation of the established plan.
You point out that such projects are about more than just layoffs. How then do you go about preventing planned cuts?
Hoss: Let me use one of our assignments as an example. The original plan was to transfer the tool-making unit of a German company to a foreign country. However, when we talked to the company’s executives, employees and members of the employee council, it became clear that the planned layoffs would entail a loss of essential competence for the company. And as a matter of fact, the foreign-based units had continuously relied on the company’s Germany-based tool makers to handle complex problems.
Lothar Hoss, Managing Director
And what was your solution?
Hoss: On our advice, the company formed a flex pool of key employees who were then designated for important projects and training measures. The cost of their deployment was assigned to the cost center of the units that ordered their services. In the end, there were no losers and the company was able to quickly transfer its tool-making unit.
One central tenet of change management is that individuals are highly averse to change. How do you reach the hearts and minds of the employees?
Hoss: By proactively approaching them, communicating with them in straightforward terms and finding quick solutions and employment alternatives that are socially equitable and tailored as far as possible to their needs. While that may sound rather technocratic, it’s the only way to gain the trust of employees. And without their willingness to work, many an enterprise would grind to a halt.
You prefer to avoid scorched-earth approaches. But isn’t the devil often in the details?
Dr. Dannhorn: Without a doubt. When assessing a proposed solution, enterprises are often incapable of seeing anything except the direct costs. In doing so, they underestimate the cost of collateral damage, for instance, in the form of internal conflicts. Such conflicts tend to draw out the implementation phase and lead to performance deficits that can paralyze an enterprise. We always take a holistic approach to devising our restructuring plans, and we develop individualized cost models for the benefit of our clients. This enables our clients to better secure their strategic decisions at the highest levels.
What are some of the specific things you can do to help enterprises?
Dr. Dannhorn: We’re familiar all aspects of change management, and the entire spectrum of approaches and solutions. With our many years of experience and our validated data, we’re able to quickly develop and assess various promising strategies for the projects at hand. As soon as we enter into initial talks with our clients, we begin to gauge the risks and opportunities from various perspectives. This enables us to present alternatives that lead projects to successful conclusions.
What does that mean when it comes to socially equitable arrangements?
Dr. Dannhorn: Our aim is to ensure our clients’ ability to embark into the future with the best possible team. This is also why we proceed very carefully when it comes to arriving at socially equitable decisions. Together with enterprise executives, we examine and evaluate all of the relevant data and any alternative employment options. This enables us to reduce problematic decisions to a minimum. We apply standardized procedures during the implementation phase. The use of automated systems allows us to avoid costly sources of error commonly associated with manual processing.
Dr. Wolfgang Dannhorn, Managing Partner
As a matter of principle, wouldn’t it make more sense if companies were to solve their own problems? In other words, don’t such cases fall squarely in the purview of the HR manager?
Hoss: Well, it’s a little like the difference between a general practitioner and a specialist in medicine. When it comes to complex cases, general practitioners – which is essentially what HR managers are – are likely to be in over their heads. Yes, they have a good overview, but they’re often less familiar with the crucial details. And they typically lack the resources to implement the necessary measures in a reliable and stable manner.
Dr. Dannhorn: In crisis situations in particular, the focus of those responsible tends to be on the task of securing the assistance of banks and investors, as well as to placate customers and suppliers. And let’s be honest, no one is going to venture into the line of fire. In contrast, an external advisor can operate in an impartial, unfettered manner.
You seem to be suggesting that seeking your support is a matter of risk minimization?
Hoss: Exactly. The enterprises find themselves in exceptional and sometimes precarious situations. They need to restructure so as to avoid compromising their reputation. Or they want to participate as a foreign investor in acquisition proceedings and are looking for a reliable partner to lay out the viable approaches.
You regard yourselves as bridge builders. What vectors of self-interest need to be bridged?
Hoss: As mentioned, enterprises often find themselves in the middle of a transition when they turn to us. That means they have already begun to engage in talks with the stakeholders, primarily with employee representatives and unions. Our task is to create an atmosphere of trust. This enables us to reconcile interests that initially seem diametrically opposed to one another.
Let’s put it this way, the one side is determined to meet cost objectives while the other is determined to secure long-term jobs. Isn’t reconciliation destined to deliver unsatisfying results?
Hoss: By no means. Our model is a give-and-take alliance between the employees and the employer. As innumerable examples from the financial crisis compellingly show, such agreements between the stakeholders are especially well-suited to constructively mastering a temporary crisis. While the employees obligate themselves, for instance, to work additional hours, the employer agrees in exchange to secure continued employment.
And if the threat from rising costs is serious enough?
Dr. Dannhorn: Then painful layoffs will be necessary to ease the crisis in the short to medium term. We make no bones about that. But naturally, we then also need to implement the necessary measures to improve the processes. And this is where internal company alliances can have many positive effects. The enterprise is given an opportunity to renew itself – a classic win-win situation.
But it’s also true that such alliances work especially well in environments where a good measure of harmony already exists between the stakeholders. The situation in many enterprises is far from harmonious. What problems pose a special threat?
Hoss: As a matter of fact, many attempts to restructure are fraught with conflicts that have a corrosive and lasting effect on the enterprise. Our experience shows that early indicators are often ignored and attempts to right the ship are too late or simply draconian. In an effort to assure investors, poorly calibrated measures are implemented in haste. It’s not surprising when the employee council, feeling broadsided by the unforeseen layoffs, turns to the press to air its grievances or refuses to accept overtime work, responses that naturally exacerbate the crisis.
What do you say to clients who are already contending with such developments?
Hoss: The important thing is to remain calm, to come together and to step back from the brink in the interest of sustainable solutions. The enterprise can only return to the right path by engaging all stakeholders in a common search for the best possible solution. And when a mutually acceptable plan has been presented and implemented, then we can bid farewell to an enterprise that has regained what it takes to succeed.