Sun Death Spiral: How Not to Do a Layoff

Rob Enderle

I'm a firm believer that layoffs should be the last resort of competent management and that doing them early or badly is one of the signs of incompetent management. In the case of Sun, I don't think, given its recent $1.7 billion loss, management had much choice, but the execution of this layoff will likely do more damage than good. Sun won't be alone, though; this economy will drive deep layoffs and few firms know how to do them properly.


The problem goes back to decisions made in the '70s by the U.S. government, which was trying to put a Band-Aid on a discrimination problem. As a result, human resources, initially designed to assure employee availability and productivity, became a compliance function. This massive focus on equal opportunity, which should have centered on skills, wiped out the emerging science of expert employee management by trying to force people into jobs they weren't yet qualified to do. Collateral damage was the loss of the skills and knowledge of how to do layoffs. As a result, this knowlege exists in few companies in any segment. This will be a problem, and a significant one, as company after company has to lay off staff as a result of the economic meltdown.


The fundamental mistake that Sun is making is to spread the layoff out over a year. This should have a negative effect on productivity because people don't function well if their livelihoods are at high risk. The layoff, executed this way, should do more damage to the company than good.


How to Do a Good Layoff


The best layoff is one you don't have to do and the goal of any layoff is to assure it is the last. It must be deep and it must be fast, to put the company back into stable growth mode as quickly as possible. Guy Kawasaki, one of the most capable people in tech, has some rare good insight into how to do this.


Think of it as a life-threatening operation on the body of a company. Just as it would be if you were receiving a heart transplant, the longer the operation goes on the higher the probability it will result in the death of the patient. In addition, collateral damage increases, reducing the survival of other organs in the body -- or other parts of the company. And because hiring is curtailed significantly while a layoff is in progress, corrective action for voluntary departures (which tend to go up significantly during a long layoff) through hiring is nearly impossible to accomplish.


These are the rules:


Rule one: Always know institutionally who your most valuable people are and what your most critical projects are. By critical, I mean the projects that have the greatest number of organizational dependencies. If you don't have those two pieces of information, you can't do a large layoff without putting the company at high risk. Think of this like locating the critical arteries before making the first incision; if you cut in the wrong place, the patient, or in this case the company, dies. Any layoff should protect and reassure the critical people and not break a critical process or project. In short, there should always be clear knowledge of where cuts cannot be made, so that if you have to do a layoff, it doesn't do more damage than good.


Rule two: Over-cut the workforce, which I realize isn't intuitive. Even if you do it perfectly, a 20 percent layoff should have an impact of 20 percent on productivity, so your projections for cost reduction at optimum will be 20 percent too low. And no one does layoffs perfectly. If Sun did the analysis conventionally, it is undercutting by between 5 percent and 10 percent of the total, which will create additional problems at the back end.


Rule three: Get it done fast. From the time people are aware that a layoff is coming to the time it is executed, days, not months or years, should have passed. The company is crippled as long as the layoff is in progress. The sooner you get to a point where you can hire again, the sooner the employees are focused on the business of the company and not their own jobs or the perceived incompetence of management.


Layoff Contingency Plan


There should always be a layoff contingency plan that highlights both the process and the critical people and areas to protect. Layoffs are always a possibility; using the good times to plan for the bad is one way to assure that the bad times will hurt your competitors more than they do you. War gaming is excellent for this, but few companies take the time to create disaster plans, let alone layoff contingency plans. This time should be a reminder that that isn't wise.


Wrapping Up: How Not to Do a Layoff


As you watch companies announce layoffs, the only real external indication of whether the company has a clue how to proceed is the length of time it will take to complete the process. If it is short, chances are they know what they are doing. If it is more than a couple of months, or in this case a year, they don't, and the market will judge the firm harshly.


In any case, vendors undergoing layoffs should generally be avoided until the layoffs are complete and an assessment can be made of the viability of what remains. Bad layoffs are a company killer. You don't want their problems to become yours. Given the circumstances, avoiding companies doing layoffs may be impossible, but you can certainly avoid those doing it badly.


Finally, take the time to identify the people in the vendors that support you who are critical to your success -- and ensure that they aren't on a layoff list. If there was ever a time to make the management aware of vendor employees who are important to you, this is it. If you don't you may suddenly discover they are gone and you have no ability to bring them back.

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Nov 16, 2008 2:36 AM N. M. Postman N. M. Postman  says:
One would think by now enough people have been laid off that it would be a better run process!How true that the rumors of layoffs are disabling. I was downsized from a bank in 2006, and the layoffs continue. People spoke openly about waiting for their date - but no one with any time in wanted to lose severance, possible retirement and the outplacement services by just leaving. The worst story I heard was of an accounting firm that used the PA system to call people in alphabetically . When no one came back, the remaining employees figured out what was happening - the place was closing down. Reply
Nov 16, 2008 9:22 AM Bob Bob  says:
If your basic premise is that layoffs taking place over a long period is the sign of bad management, what do you think of HP? It has been laying off people every week since early spring, and it will continue for many more months. And, what about IBM starting the same? And dozens of other companies following suit? Constand, long-term layoffs are now the American way of doing business. Reply
Nov 17, 2008 1:13 AM Lisa Lisa  says:
How about if companies, instead of worrying of this quarter's numbers and the shareholders, buck it up and worry about employees and future earnings by not laying off (so many) people? This way people will have money to spend and the economy can get itself back on track. By all these companies doing mass layoffs, it becomes a self fulfilling prophecy. And the economy will continue to spiral down. Let's worry about Joe Average employee who's not making that much money. IF anything why not cut a few at the top -- those paid millions to save 100's of jobs that will drive the economy.Just my 2 cents.Lisa Reply
Nov 17, 2008 1:36 AM Steve Gregg Steve Gregg  says:
After going through a handful of layoffs, I can tell you that none of them were done well. That kind of enlightened management that does layoffs well does not exist.I was employed by one large manufacturer who laid hourly workers off every Monday, salaried every Tuesday for five years. It brought out the worst in everyone.Companies that lay off, lay off. There is never a single layoff. Companies always dribble them out. If you are in a company that has just had a major layoff and survived, start your job hunt now and get the heck out of there. Your number is coming up in a few months.Whenever the CEO holds an all hands meeting, looks you right in the eye, and tells you there are no layoffs planned, that means there will be a layoff within three months. Get your resume on Monster that day and begin interviewing.If your company doesn't turn a profit, layoffs are coming. If other companies in your industry are laying off, your company will be laying off. Beware of signs of imminent peril such as paper running out for the copy machine. That means vendors won't accept your company's credit. If HR suddenly has its door locked for days, they're planning a layoff. If you see groups of people outside the office talking on their cell phones, then they know a layoff is coming and are interviewing by phone. You're the last to know.If your company has merged with another company and is the junior partner in that merge, layoffs are coming your way. Don't trust anything the acquiring bosses say about your job being safe. Get out now.The odd thing about layoffs, at least in IT, is that most often they work for you. It's forced job-hopping which is the best way to get ahead. What you discover after a couple layoffs is that you get bigger raises and more training and better experience by moving to another firm. You'll come to feel sorry for the people who escaped being laid off back at your old firm. Reply
Nov 17, 2008 2:00 AM Robin Harpe Robin Harpe  says:
Steve you are absoultely right. Layoffs from the affected employees stand point is the best time to take stock and consider alternative career solutions. I have had 14 jobs in 28 years, 5 I was laid off from. As a previous HR Director, now Entreprenuer, there is life after layoffs. You can take control of your life, explode your results and have the life of your dreams. You first have to decide that is what you will do. And, recongize that companies do not offer stablility -- it is a false sense of security. You are the only one who can change your life circumstances. My book gives you tremendous resources and tips on how to survive our current economic slow period. Everybody should have a copy, not becuase I wrote it, because I lived it and teach you from my experience what works. Send the link to all of your affected friends and colleagues. Here is to your success. Reply
Nov 17, 2008 2:10 AM Russ Russ  says:
Don't forget there may be legal reasons for protracted layoffs! I used to work for a Canadian bank. There was (maybe still is!) a law that if a company laid off 50 or more employees in a month, that they had to complete a lot of extra paperwork for the government, and kick in extra contributions to the unemployment insurance system. So.... ecvery month.... they laid off 49. Reply
Nov 17, 2008 2:17 AM spooky spooky  says:
It sounds like blame for the current economic situation is being blamed on affirmative action. I don't get it. Does it takes a meltdown to discover that things are not working or that a particular employee continues to work at a position even if that person's productivity is below expections? The real problem is trickledown or meltdown economics. They are both the same. Triggered by buying and selling on credit. The bill has simply come due. Reply
Nov 17, 2008 6:58 AM Peter Peter  says:
I have the perspective of one who was laid off and has been out of work since June. In my case the company has been laying off for years. In one of our biggest actions an executive came in from headquarters and announced early in the day that we should stay by our desks as there would be 'job actions' that day. You can guess how productive a day that was! Even for those of us who survived (I made it through that one) it was several hours of fear and loathing followed by several more of gallows humor. On the whole, I prefer that no one get too good at this. Let management learn how to build optimum staff and create ways to keep people working. Reply
Nov 20, 2008 5:05 AM Ed Ed  says:
I worked at Sun as a Director. Sun is an amazing case of how not to run a business, but its taken on a life of its own. For 8 of my 9 years I watched in horror as each of 2-3 annual layoffs took more and more enthusiam out of the workforce. It started as an annual RIF, then grew to smaller sized affairs that ran year round, largely determined by the HR workload. It also became obvious that Sun was churning the workforce, taking out the older, higher paid employees to get youth (and lower labor costs) back into the company. It became who you know, and rarely were programs solidly resourced as everyone was spread too thin, and due to the renegade culture, managment could not really kill anything. They'd say it , yes, but in a week you'd find it had rooted somewhere again. There was never a true understanding of our business, even less of a shared understanding, and objectives vasilated from "support the financial sector", to "we must find some new customers". I met a lot of good people, and great technicians at Sun, but few competent managers. It was a sigh of relief when I finally got laid off. I realized I was indeed tired of putting out so much effort and accomplishing so little that had any lasting value, to a thankless enterprise. It was a common complaint. Now there's an emancipation for 6000 more coming soon. I do feel for the living dead still there. No human deserves the amount of stress one feels from solidly commiting to Sun then living in constant fear. Reply
Nov 25, 2008 8:30 AM Sun4v Sun4v  says:
Also, a good rather humorous way to not announce a layoff:Don't announce it the last day of your major product conference. (Sun Announced at 5am MST on the last day of the conference).Just a thought. Reply
Nov 26, 2008 2:40 AM esmith512 esmith512  says:
I have first hand experience in a layoff well-done. I was laid off in 2007 from a contracting company as they were losing one contract and was overstaffed for a subsequent contract. Of all the layoffs I've been a part of, theirs was the best handled in my career. They called the affected contractors into the contracting office one-by-one and fully and openly explained the situation to each and that their employment would be ending in 30 days. The affected contractors were free to talk to each other, all the affected clients, and were welcome to openly look for other work if it did not negatively impact their duties in their remaining time on contract. I was one of the contractors who worked to my last day simply because I wanted to do the best job for our clients. After that I took two months off (one month was simply off for fun, the next was seeking work), and was eventually rehired by the contracting firm. Also, the firm is one the best companies I have worked for in my private and contractor career. In our environment, the best policy for layoffs is simply to be open, honest, obvious, transparent, clear, certain, helpful, kind, mutually understanding, and minimize any elements of surprise, misunderstanding, or suddenness. I recognize contractor environments are more respectful, honor-centric, independent-minded, collaborative, and profoundly less political than private dog-eat-dog corporate environments, but in my career my layoff (and rehire) was among the best done I've experienced to now. Reply

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