RIF

RIF

What in the world is RIF? We are all familiar with business expressions, platitudes and the ever-changing landscape business undergoes with a changing economy. Such is the case with management concepts and processes to deal with them. RIF is the acronym for “Reduction In Force”. What’s that, you say?! In the 80’s the same concept was called “Down-Sizing” while in the 90’s we called it “Right-Sizing”. Sound more familiar? The process by which a company reduces its workforce to adapt to a decrease in human capital (personnel) needs is common when the company encounters a decrease in demand for that product or service in the market. So how and when does a company decide that a “RIF” is necessary? Let’s discuss…

If you’ve followed contemporary business news, you have likely heard that Bed, Bath and Beyond has recently closed over 200 of its stores across the country. The reason that the retail chain made this move has not been widely debated but the outcome was in the cards as little as 2 years ago. At its peak, most stores employed 30 to 50 employees per location. As sales began to decline, the need for logistics personnel, sales staff and administrative people also declines. Similarly, Toys-R-Us and Radio Shack recognized their demise years ago largely for reasons of demand, available options, and an inability to change with the changing economy. As you would know, most of these types of declines happen gradually. Thus, personnel lay-offs and employment terminations also come gradually.

Then there is the tech and online industries who deliver a product that is not on the shelf and doesn’t require great retail space or sales personnel like a Bed, Bath and Beyond store requires. The most of their staffing comes in the form or programmers, coders, marketing professionals, and host of other administrative personnel. In these cases, most of the employed persons are viewed on the income statement as “overhead”, much like office rent and utilities. There are a variety of ways by which accounting and finance professionals measure and guide company performance and account for the human element. But the bottom line is, well in fact, the bottom line. If any company recognizes, hopefully in advance, a gradual decline in sales and subsequently their profit, changes must be made to keep the company in solvency – and in operation.

In some of these cases, the company recognizes that innovation and technological advances in delivering their product or service requires fewer people to provide the same sales volume to the consumer with a non-diminishing bottom line. Hence, a RIF is inevitable. When the human element reaches a point where the gross margin can no longer support the existing overhead with a planned profit outcome, changes are often made. It is never a comfortable event for a company but in the interest of its investors and its appeal in the marketplace to stay in business, a RIF may become its only option. In most such cases when insolvency or bankruptcy is the predicted outcome, it is understood that all other cost savings options are considered before the company chooses to reduce its workforce.

The unfortunate reality is that some company management teams may be operating with insufficient information (financial data) to accurately predict future outcomes. In other cases, an unsteady management team may ignore the signs of insolvency for entirely too long. In each case, it is not unusual for a CEO or Board Chairman to step in and make the hard decision. When the afore mentioned organizational decision-makers are faced with the choice, it is for the benefit of the rest of the staff and its investors, either shareholders or the creditors. But the outcome is required. The prevailing question becomes, “Is a RIF avoidable?” The answer is complicated, but the logic is simple.

A RIF is largely a process that a company of many employees must employ. But even a small business of 10 or fewer employees can recognize when they are slumping into a place of financial concern. The qualifier here is IF… If they can or choose to see through the window of financial measurables and make a decision that will alter the course of the company before it gets worse. Are they properly measuring company performance, product and sales performance, rising cost controls, gross margin, profit margin along with fluctuations in market demand and a host of other measurable KPI’s (Key Performance Indicators). If they are truly on their game, the simple answer is often “yes”, yes they can make incremental changes to avoid having to make big changes.

It’s a cautionary tale to see companies like Meta, Amazon, Zoom, E-Bay, PayPal, IBM and Spotify who have recently had to embrace a RIF for a failing to deliver the profit performance that is expected by its investors – stockholders. The smaller the company, the easier it is to control. That is IF you watch the KPI’s. At the rate that multi-national companies generate revenue and must control the many moving parts required to stay competitive, it almost seems easy by comparison to control a much, much smaller company. My business colleague and friend, Skip often says, “If you treasure it, you should measure it!” For all of you reading this blog who own a small business or even work at a small to medium size company – understand how you (and others, particularly leadership) can measure your performance and that of the company to make correctional changes before they get worse. After all, Stephen Covey was quoted as saying, “I am NOT a product of my circumstances, I AM a product of my decisions.”

Steve McCrillis            04/30/2023     …for the BizEasy Network