Many managers we have worked with over the past decade have known only rapid business expansion. Managing during a significant business slowdown, even a short-lived one, is a new experience for them. For the first time in their careers, some managers will face the reality of dramatically reducing the number of people in their ranks.
We have received numerous questions about the best ways to approach making necessary cutbacks. Since the 1960s, The Gallup Organization has worked with many clients who have had to reduce headcount -- in some cases, substantially. Here are some of the lessons we have learned about best practices in this very difficult management area.
First, downsizing your sales force, when done right, can have a positive effect on sales productivity and growth. These positive effects offset the brief negative reaction the salespeople may experience as an immediate aftereffect. However, when done poorly, reducing your sales force can result in prolonged and sustained damage to your sales organization. Cutting back is just one of those things managers must do right.
Cutting your sales force is usually part of a larger company plan to cut expenses. However, reducing your sales force late in the year is more likely to increase your expenses in the current budget cycle rather than decrease them. The costs of severance, outplacement, and other out out-of-pocket expenses that result from staff reductions are usually greater than the expense of carrying those employees on the payroll for the current year. Because of this economic reality, some companies choose to cut resources and support for their sales forces, rather than to reduce headcount.
Companies may restrict out-of-town travel, or reduce sample or phone budgets, or make any of a dozen other expense cuts to help the bottom line. However, unless your company expects business to improve dramatically in the very near term, these intermediate measures almost always backfire. Your best people sit at home, you kill your sales momentum, and you end up in a weaker position when the next budget cycle starts. Your top producers will quickly become disengaged without the resources they need to do their jobs effectively.
To avoid demoralizing their best producers, smart companies usually opt to accept the short-term economic consequences of downsizing. As a result, these companies position themselves to operate more efficiently and productively during the next budget cycle.
If your company decides to reduce headcount, these best practices can help it gain the most from this difficult process.
A reduction in headcount based on productivity measures usually results in an immediate improvement in sales force effectiveness, rather than a decline. When Gallup studied 170 different companies (all well-known, well-run, major organizations), we found that, on average, 35% of the sales people lacked the requisite talent to succeed in sales on a consistent basis. Furthermore, on average, the bottom 25% of most sales forces measured at near zero on their company's productivity metrics. Finally, we found that 19% of the sales force personnel were actively disengaged from their jobs. Not only did they produce at very low levels -- many of them actively alienated customers.
The implications are clear: Most sales forces can be reduced significantly without affecting the productivity of the entire organization, if the reductions weed out poor performers. Eliminating bottom producers can actually improve the sales force's productivity.
However, this occurs only if you use productivity measures to determine who goes and who stays. Sometimes companies are tempted to use other measures, such as seniority (and with it, higher base pay) or subjective evaluations made by front-line managers. These are serious mistakes. The criteria you use to decide which salespeople to keep -- and which to get rid of -- during tough times send a clear message about your company's culture. If you want to have a results-oriented sales force, you must use measurable results to determine who stays and who goes.
Depending on the length of the business cycle, or other unique circumstances in which your sales force operates, you may want to use more than one year's productivity measures to make your decisions. For example, one client decided that anyone who had been in the bottom 25% for the last two years would be let go. This exact formula may not be the right approach for you, but the point is to base your decisions on a sound productivity formula and stick to it. A uniform standard should also shield your company from potential litigation.
An objective guideline also helps you communicate effectively about the cutbacks, and it can send a message that will reassure your most productive sales personnel. An impartial, easy-to-communicate guideline helps salespeople see immediately if and how they may be affected -- and how safe they are, should the company need to implement a future reduction in force.
In good times or in bad, most sales forces would be better off without those bottom-performing individuals. However, it's often hard to make a decision to reduce headcount during good times. A slowdown in the business cycle can provide an opportunity to do some necessary pruning.
Cut once, and cut deeply
If you are cutting based on productivity measures, it is better to cut more people than necessary rather than fewer. This is a critical point. You must cut deeply enough to ensure that the expense dollars you save will provide enough resources to the remaining salespeople. The goal should be to enable improvements for the remaining sales force -- don't ask high producers to make continued sacrifices. As you announce the reduction, you might consider improving the commission plan or accelerating salary increases. These actions will quickly win the support of the remaining members of the team. Do something to make things better for those who remain.
Letting go of too few people may just force you to have to cut again, and soon, if business doesn't turn around quickly. If your cuts don't go deep enough, your sales force will just wait for "the other shoe to drop." Productivity and morale plummets under these conditions. Avoid the "death by a thousand cuts" syndrome at all costs.
As you resize your sales organization, maintain your salespeople-to-sales management ratios. If you had a 7:1 ratio of sales reps to sales managers before you made your cuts, your goal should be to maintain the same ratio after those cuts. This means that you will need to cut managers, as well as salespeople. Save your best sales managers, and cut your worst. If you have made the all too common mistake moving a talented salesperson into a management role for which that person is ill suited, you may be able to reposition an excellent salesperson into a more rewarding role.
Avoid the temptation to increase the number of salespeople reporting to a manager. We have seen companies cut too many managers, or give the surviving managers far too many responsibilities. Companies make these decisions because protecting headcount in the sales ranks seems more important than maintaining adequate management support levels. However, our research shows that increasing the number of sales reps reporting to managers frequently results in higher turnover and lower productivity.
After the cuts
Be careful about reassigning territories or customers if you expect to be expanding soon. Good salespeople often resent having to baby-sit customers outside their territories, even on a temporary basis. So if you expect to re-hire representatives as your business picks up, you might want to cover those customers with internal contacts or assign one or two freelance salespeople to cover all the vacant territories. You will usually find that these customers have been buying in spite of your sales reps, not because of them. You don't want to divert your best salespeople from maintaining relationships with their own good customers by asking them to make temporary calls on other accounts.
This is also an excellent time to re-tool your selection process. Remember, the reason you got rid of poor performers was because you hired them in the first place. Don't hire sales reps who lack the talents necessary to excel at sales. Too many selection criteria are based on experience and education, rather than the talent to do the job. After you reduce head count, rebuild with more talented individuals.
And be wary of eliminating meetings or needed training for your managers and staff. These events often reap an even bigger dividend after headcount reductions. Some of Gallup's most powerful Q12 workplace management programs have been initiated during difficult times for the company. Demonstrate your confidence in your company's future by investing in the growth and development of your key employees. Improving employee engagement is critical after a cutback.
A difficult task
Bob G., a vice president of sales at a large company, explained the obvious: "It's a lot more fun to add people than to let them go." Without question, getting rid of people is difficult for any manager, even if the cutbacks are made among the least productive workers. These individuals are often your friends, and in many cases, they have tried to be successful and may be popular with other employees. Treat employees who are leaving with dignity and respect. You may want to explain to your remaining employees what the company has done to make this transition as painless as possible.
Still, even with generous severance packages, many managers tell us that letting people go is the toughest thing they ever have to do. Great managers, however, quickly shift the focus from their own feelings to what they need to do to support their remaining team members. Those remaining employees will need the resources to do their jobs, they will need opportunities to learn and grow, and they will need to sense a commitment to succeed among their fellow employees. If you have managed your sales force reduction the right way, your new sales team will be stronger, have better resources, and have greater opportunities than ever before.