post # 514 — March 7, 2008 — a Strategy post
So now comes the test. You’re a professional firm, with a variety of pracrice areas or target industries. Due to turmoil in the markets, business is down (or is forecast to be down) in one or more of our major areas. What do you do?
Choice One: Lay off some of the junior staff, thereby cutting costs to keep them in line with declining revenues.
Choice Two: Have the partners take a “haircut” (ie reduced profitability) and continue to show loyalty to the juniors by keeping them busy with whatever work we *do* have (ie delegating as much as possible) and using the relative underutilization of partner time to free them up to go out and and work against the weak year (ie client service, marketing and selling.)
- Guess which one most firms are going to do?
- Guess which approach builds a more profitable firm over time?
- For extra points: how much is this decision really going to be affected by firms declared programs for retaining scarce staff in the war for talent?
Get ready for a dropping of the facade of idealism and principle, and a return to the pragamatics of sustaining short-term earnings at all cost.
As always, I have to stress that this is not a moral issue but one of pragmatics. If one of your key competitive issues is attracting and retaining key staff, how can you have a policy of laying them off (or “asking them to re-apply to another part of the firm”, as one firm describes it) at the first sign of trouble?