Knowledge@Wharton

Downsizing cuts costs for the moment, but it also can leave companies ill-prepared for gearing back up when the economic recovery arrives. So how can you know when downsizing is the right thing to do, and when it could cost you market share in the long run?

Learn when layoffs make sense - and when they don’t — from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton management professor Peter Cappelli.

“In trying to cut operating capacity below the right level, it’s easy to cut muscle and not fat, and in today’s world most companies have not got very much fat,” Cappelli says.

 

 Avoid Cutting Muscle and Not Fat [4:53m]: Play Now | Play in Popup | Download

What are the biggest differences in how small- and medium-sized companies handle downsizing compared with larger companies?

Layoffs are more complicated for small and mid-size companies than for larger enterprises. For smaller companies, the process is more personal — and thus painful — and often there are few or no HR specialists to help out. The temptation is to just “wing it” and move on. But that’s one of the biggest mistakes smaller firms make because it creates misunderstandings that can lead to unnecessary clashes.

In a conversation with Knowledge@Wharton, the Wharton School’s online business journal, Wharton management professor Peter Cappelli talks about how to avoid some common pitfalls when laying off staff.

When companies tell employees they are laid off, they often have no plan on how to handle the aftermath, says Cappelli. “It’s like telling someone they have a serious medical issue, and then not being prepared to answer all of their questions.” It’s just not a smart way to handle it. “People make up answers … if you don’t give them answers. And I can pretty much guarantee that the answers they make up will not be the most flattering to the organization and its bosses.”

 

 How Small Companies Can Avoid HR Misunderstandings [8:27m]: Play Now | Play in Popup | Download

Unfortunately it’s easy for companies to make mistakes when downsizing that lead to costly and time-consuming lawsuits.

Learn how to avoid some common pitfalls when downsizing from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton management professor Peter Cappelli.

Even when companies have a clear strategy for their layoff plan, they often do not “prepare front-line managers for how to execute the plan — and it ends up in lawsuits,” Cappelli says. In a layoff environment, “people start suing,” and in a down economy, “they often win higher damages.”

 

 What Are the 3 Biggest Mistakes Small- and Medium-sized Companies Make When Downsizing? [8:22m]: Play Now | Play in Popup | Download

Laying off employees is never easy. But in tough economic times many companies must consider it. Before taking any action, however, you should answer some critical questions. Should you lay off a poor performer in a critical area — or star performer in an obsolete operation? Could it cost you more in the long run to fire someone now than to keep them on another year?

Learn the answers to these and other crucial questions — including the best way to manage “survivors” — from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton management professor Peter Cappelli.

“One of the most important — yet most ignored — questions in layoff situations is, ‘What happens to the survivors?” Cappelli says. After layoffs, “It’s very common for people who survive them to panic. They ask themselves, ‘Why did I survive?’ They freeze or they spend all their time looking for a new job because they figure, ‘I’m next.’”

 

 Should You Downsize, and If So, How Much? [10:16m]: Play Now | Play in Popup | Download

What are the three biggest marketing mistakes small- and mid-sized business make in a downturn?
Cutting your sales force or service levels, dropping prices without a clear plan for making up the lost revenue, and not understanding how much you make on each product — so you know what to push and what to pull - are leading contenders.  Cash flow is the crucial gauge for monitoring all of this, and when it starts to flat-line it’s usually because of bad marketing decisions.

Learn how to avoid the three biggest marketing pitfalls in a downturn from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton marketing professor Eric Bradlow.

The biggest pitfall, he says, is a knee-jerk drop in price: “A lot of firms, shockingly, don’t know how much money they make on each product line. Let’s just remember that a bigger number multiplied by a negative number is a bigger negative number,” Professor Bradlow says. “So a lot of people drop price on product lines that are already not making money on a per unit basis.”

 

 Avoid the Three Biggest Marketing Mistakes in a Downturn - Eric Bradlow [6:43m]: Play Now | Play in Popup | Download

If your business is going to survive and thrive in this economic downturn, your distributors downstream have to do well, too. That means you don’t scorch intermediaries - it will hurt you in the long run. In fact, you need help them. But giving something away, without getting something in return, can be very destructive to your company in a downturn.

Learn the best way to manage distributors — and suppliers — during an economic downturn from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton marketing professor Eric Bradlow.

“The best thing that small and medium businesses can do is use this as an opportunity to work as partners with their distributors and suppliers recognizing that if they’re going to go out of business it’s worse for their suppliers,” says Professor Bradlow.

 

 Keeping Distributors Healthy in a Downturn - Eric Bradlow [7:14m]: Play Now | Play in Popup | Download

Pricing and promotions are tricky to get right during recessions. Lower prices often guarantee only one thing — lower margins. And customers will expect those low prices to remain once the economy recovers. Otherwise, they’ll be looking for new vendors. Yet doing nothing is almost certain to drive business away.

Lowering prices is “the easiest short-term tactic to do to hopefully gain revenue. It’s an easy tactic to do to tell your customers that you’re being responsive to the downturn in economic times. But there’s a huge number of problems with dropping price,” says Wharton marketing professor Eric Bradlow.

So what should small- and medium-sized businesses do?

Learn the best way to handle pricing and promotions in an economic downturn from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton marketing professor Eric Bradlow.

 

 Pricing in a Downturn - Eric Bradlow [8:11m]: Play Now | Play in Popup | Download

Pump up your marketing spend in a recession, some experts argue. Slash expenses, including marketing, say others — after all, there’s less business to be had. But neither approach gets it right. The best strategy is to cut your marketing spend in some areas - but increase it in others.

Learn the smart way to decide where to place your precious marketing dollars from Knowledge@Wharton, the Wharton School’s online business journal, in this conversation with Wharton marketing professor Eric Bradlow.

 

 Knowledge@Wharton interview with Eric Bradlow: Play Now | Play in Popup | Download