Cutting Into Bone

October 20, 2008
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Legendary CEOs like Jack Welch and “Chainsaw” Al Dunlop made their reputations from a hard-nosed philosophy that elevated financials over people. For instance, they famously advocated firing the bottom 10% of performers every year as a Darwinian strategy to continually improve the fittest. If things I’ve heard are correct, a few distributors have turned that philosophy topsy-turvy.

The rumor mill is churning out stories of industry veterans who have risen in management and sales positions - thanks to track records of top performance - suddenly getting canned, basically because they make too much money. Branch managers or sales reps with a history of good performance find their numbers sagging in today’s miserable environment, so they get replaced with someone of lower rank willing to work for less. The replacements don’t necessarily perform any better, but at least they don’t cost as much.

The weirdest story that burrowed into my ears goes back a few years and concerned a manufacturer CEO who fired a rep firm because he was infuriated to cut checks to the rep each month that amounted to more than he earned. It was explained over and over that those commission checks represented gross pay, out of which the rep firm was responsible for its own payroll and overhead. Yet despite having an MBA from one of the country’s most prestigious business schools, this executive turned a deaf ear to the explanations. He couldn’t get over the psychological anguish of seeing a mere sales rep with a bigger paycheck than his each month.

Many businesses in our industry have been stung badly by the housing downturn. Recessions are nature’s way of telling us we’ve been living high off the hog, so cost cutting is essential. Many businesses in our industry have already trimmed the organizational fat, so painful cuts are inevitable. But it’s important to recognize that nobody ever saved their way to prosperity. There comes a point where the cost cutting imperative ends up throwing out babies with the bathwater.

Leadership, whether in business, politics or any other endeavor, is anchored in judgment calls. Judgment calls require calm and collected thinking. One aspect of that is to keep in perspective how panicky decisions made today during a crisis might reverberate in the long term after recovery gets underway - as it most certainly will whether sooner or later.


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