Layoffs – What’s Your Excuse?

Between 2001 and 2003, I was the Regional Vice President for the Midwest for Jefferson Wells, Inc. I joined to bring a more consultative approach to what was already a very successful start up, an independent provider of internal audit and accounting /finance staff augmentation services to Fortune 500 companies. However, the firm had been recently purchased by Manpower, who turned out to be more comfortable with exploiting the volume of Sarbanes-Oxley than running a high-end consulting firm.

I liked the model because it was as much like BearingPoint in terms of business development as a staffing firm could be. Jefferson Wells has professional business development executives who sell via a combination of cold calls and, at least in the Midwest where the oldest and largest accounts were, cultivating existing relationships and growing them. But unlike most staffing firms, we had to run a very tight ship in terms of utilization. This was because about 80% of the professionals were salaried, depending on the office. Many of the lower end staffing firms and some of the higher end ones have shifted to a larger proportion of hourly and contractor resources – folks who don’t have to be paid or provided many, if any, benefits if they’re not assigned to a client. So when business slows down, the payroll also shrinks.

We had, at that time, a higher proportion of salaried professionals. Therefore, utilization, the percentage of available hours worked by those being paid a salary, had to stay close to 100%. This requirement was also a function of the rates we charged. The lower the rates, the more you have to preserve your margin by minimizing any time that is paid but not earning for you. The rates were lower than the Big 4, due to the fact we hired primarily experienced professionals, or those who were refugees from the Big 4 or Fortune 500 internal audit and accounting finance functions. In many cases they had been “made redundant” due to outsourcing or cost cutting once or twice before. They also liked the no travel approach, due to a local focus on client service. (That didn’t last when SOx and the resultant client demands and resource constraints made travel often necessary.) There was no paid training and no time spent by professionals developing business. There were designated business development executives devoted to selling who were paid instead a minimal salary and a generous commission. The staff professionals only worked; they did the job they were good at and wanted to do.

When business slowed down, we could be stuck with headcount that were not earning for us, sort of like pimps whose girls are at the coffee shop instead of on their backs. The Midwest was doing fine, thanks to a good group of professionals who had done well to develop and serve some good clients who became very loyal. But the offices on the coasts went through some ups and downs during the period before SOx hit big. All of the offices experienced ups and downs prior to 2003, going back to the beginning of the firm in 1995. These were caused by local management issues, clients going bankrupt, client changes in strategy, emerging competition, etc. But none of these issues are anything new or impossible to deal with. One has to just keep moving and keep hustling…

However, the other two Regional Vice Presidents and company management, in general, had grown up with the easy and ruthless approach to slowdowns – layoffs. They either cut people directly or converted salaried employees involuntarily to hourly, therefore eliminating salary costs and the professionals’ loyalty and sense of security.

When I came on board, my region didn’t experience a straight up trajectory, but our results were consistently positive. I made a vow, though, to never do layoffs. I don’t think many of the staff really knew or appreciated the amount of heat I took for resisting the pressure from my boss to cut and be done with it whenever the revenue of a particular office dipped. There were five hundred people working for me. Nevertheless, I made no layoffs at any of my ten offices in two years, but revenue grew overall at healthy pace and we were immensely profitable as a region.

My belief is (and was then) that a professional services firm should never make layoffs, unless a cataclysmic event occurs or the business model or business environment changes permanently.

A firm feels pressured to lay off staff because:
-There’s not enough sales (Duh!)
-Or there’s too many of the wrong people compared to what your clients are buying

In our case, revenue slowdowns were 99% because we weren’t being effective in selling to our clients. We had a good product/service and good people to deliver. If we weren’t selling it was because we weren’t connecting and giving the clients what they needed – information, confidence, consistency, competitive price, quality, etc. In other words, lack of revenue was most often a sales problem, not a people problem.

We had a limited number of areas of expertise and I tried to keep it that way, forbidding services like systems integration and implementation. (We didn’t have the vendor relationships or the technical expertise to do this type of engagement.) I also kept some individuals in check who had a tendency to sell what we couldn’t deliver – either for the wrong price, without the right people available or outside of the time frame required.

Which brings me to the Big 4…
There is no excuse for them to lay off professionals who are good performers.

They are solving a leadership problem on the backs of their employees. We know that they are challenged to hire and manage true business development professionals, ones who don’t wait for clients to come to them and who are not too proud to compete.

They are laying off, too, because they have over hired/over staffed in areas to which they have no long-term commitment. That is a shame, because they are selling a bill of goods to both their clients and their employees when they start practices and don’t stick with them.

In a Big 4 consulting practice, all of the professionals are salaried. (Unless they are supplementing due to staffing constraints with other consultants and hourly professionals…) And their rates are higher. (Aren’t they?) They have to be higher to pay for all of the overhead, overhead such as mandatory training, generous vacations and benefits and other required meetings and downtime not found at smaller staffing-type firms. And they should be higher because it’s a different product, better, better trained, supported by a global network of specialists, utilizing best practices and state of the art tools and methodologies… (Yeah, yeah, yeah…)

So why would their utilization have to be close to 90% for staff to be “profitable”? Why wouldn’t they be able to afford to have some of their staff unassigned and able to support business development, take training, and “coach” each other.

Let’s look at some of the excuses for layoffs made in the past, for example, by PwC.

Layoff Plans Are Announced By Pricewaterhouse and Scient April 12, 2001
The Scient Corporation and PricewaterhouseCoopers announced layoffs yesterday, and both blamed declining demand for their advisory services. Executives at both firms said that clients were narrowing the scope of projects requiring consultants, slowing their pace and canceling them outright…PricewaterhouseCoopers, which is based in New York, will lay off 750 to 1,000 people in its domestic consulting unit, or up to 8.3 percent of the 12,000 consultants based in the United States…The layoffs at PricewaterhouseCoopers, which is privately held, are part of the company’s efforts to eliminate consultants with skills that are not in demand, Ms. Eusufzai said. In today’s market, valuable skills include knowledge of strategy and e-commerce marketplaces, she added.

Scott Hartz, global managing partner for the consulting practice, plays down the significance of the 400 layoffs: “We did separate about 400 staff, but frankly that’s something we do every year — we go through an annual evaluation cycle, and adjustments have to be made.” Hartz does admit, however, that the 400 laid off were not the only ones to have departed. “The 400 were forced separations; there will be voluntary turnover as well,” he says. Hartz claims the economic climate is to blame for the layoffs:”We’re in a slowdown, and we’re not growing as fast as we were, but fundamentally we are still a growing business. I would acknowledge that as we started the year, we anticipated higher growth rates, and we found ourselves long on resources in certain areas that didn’t grow as fast as we guessed.”
In October 1999 PWC announced that it would eliminate 1,000 administrative and support jobs. All but 250 of the job cuts are expected to come from layoffs across the country. The remaining cuts are to be achieved through a hiring freeze that is already in place. The cuts come as PWC makes a push to boost its e-commerce consulting business – the firm has plans to invest $3 billion over the next three years in this initiative. After the July 1998 merger of Price Waterhouse and Coopers & Lybrand, company officials had indicated that no layoffs would follow.

10 layoff red flags to watch out for
12/04/2002
7. Closed doors
Thomas Murphy survived two rounds of layoffs at PricewaterhouseCoopers Securities in Vienna, Va. He knew his group was up for sale, but decided to stay on. In retrospect, he admits he should have been more suspicious of senior management’s frequent closed-door meetings — some of which lasted for a full day — where they were determining what to do with the company.