Don’t Kill Culture For Margin

I think that it is fair to describe the economy as patchy right now. There are good months followed by difficult ones. Costs are rising and sales are not following them at the same rate. Businesses are under pressure to remain profitable. 

I spoke to the owner of a business who has been struggling with the cycle described above this morning.  He runs a wholesale/retail business in the suburbs of Brisbane and he formerly employed 102 team members along the east coast of Australia. For the past two years, his cost base had increased by 18% (fuel and labour costs in particular) and his revenue had remained flat. His profit had disappeared and he was now making regular losses. He knew that something had to change. 

Three months ago he bit the bullet. He decided, for the first time in 34 years of business ownership, to cut his headcount. He had felt that his workforce had become a little bureaucratic and lazy since the covid pandemic and he hoped this would give him a boost in productivity across the business. He sat down with his General Manager and started to plan. One week later, they could only agree on removing five people from the business; all low performers with behavioural issues. However removing five people from 102 hardly made a dent and they knew that further cuts were required. 

The MD and GM were lost. They didn’t really know who else to cut. They knew everybody and had personal connections across the business. They knew what had to happen but didn’t know what to do or where to start. Totally frozen, they made the decision to reach out to a HR Consultant (not me) to assist them with the exercise. 

The HR Consultant was very efficient and was able to come up with an alternative structure that removed an additional 24 roles from the organisation. After redundancy costs, this would move the organisation back into consistent profit and it went a long way to ensuring the future success of the group. The owner and GM were ecstatic; he had made the tough decisions for them and they had a plan. He had evaluated position descriptions, performance reviews and interviewed all managers and team leaders. There was a genuine confidence in the plan. 

Three months have now passed and I asked the MD how things were going. The bottom line was improving but he said morale was not good. People were shocked that they cut 25% of the workforce and were struggling to pick up the slack left by the redundancies. I was shocked with his response as I felt that the changes were obviously necessary and well overdue. I had predicted that the team would have been motivated to succeed and driven to lift productivity. However, he said that people were sad. I asked why and his reply interested me greatly. He said: 

•  We made the changes in a totally non emotional way – we outsourced the responsibility to someone who had no knowledge of our business and he made the changes solely off data. We had a loose performance management plan and our position descriptions were basic at best. This is what the decisions were based off. 
• We did not factor culture into the equation at all. Decisions were made as a result of structural efficiencies and performance ratings. 
• We did not explain our decisions to the team. We did not bring them along the journey and they struggled to understand what we were doing and the decisions that we were making. 
• We ignored the human element. No redundancy highlighted this more than moving on “Tom”. Tom is in his late 50’s and had been with the organisation for 27 years. He worked in the warehouse but also filled in the retail store, helped out with printing and was a “jack of all trades”. Tom’s position description showed that he was a “Warehouse Trainee” and his performance rating for his four performance reviews conducted in his 27 years was “meets expectations”. On paper, nobody was going to miss Tom if his role was made redundant and he was selected for a package. The cost of this decision alone has hurt the business in more ways than expected. You see, as per his contract, Tom started work at 8.00am every morning but he was never there later than 7.15am. He regularly opened the office, collected the mail and newspapers and turned on the warehouse lights. If it had rained overnight, he would check the drains for blockages and sweep up the leaves so the access to the retail site was neat and tidy. He would also unstack the dishwasher every morning and greeted everyone with a hearty hello every day. If someone was short-handed, he would offer to help. At the end of the day, he would ensure that the office and warehouse was locked if the GM or owner had left early. In 27 years of employment, he had taken three days sick leave and always had two weeks leave at Christmas and one week in the first half of the year and one in the final half of the year. Tom was made redundant with no fanfare; the HR Consultant handed him his severance agreement and he was thanked for his service and asked to leave the premises. The MD and GM did not even speak with him on his final day. Within two weeks of his departure, the MD had learnt: 
  • That nobody else swept the leaves after it rained. 
  • People assumed it was the cleaners who did the dishwasher in the mornings and would just walk past a full dishwasher. 
  • The MD had to open the office every day – he was now always the first there and realised that nobody else knew how to open the office or lock it up at the end of the day. It was only ever Tom who did this! He could not believe that his remaining team members did not know how to open and close the office and realised that they had never been there before or after hours. 
  • He took Tom for granted and regularly went to delegate things to him that were not on a job specification. Sick leave rates were very high among the remaining team members and everyone missed Tom. He would make a coffee for people every morning and would often bake cakes for the team in the office. 

The MD regretted making Tom redundant and called him to ask him to return to work. Tom respectfully declined as he had obtained another role and was really enjoying it. He had received a promotion and was making an increased salary. He apologised to Tom and admitted that he had avoided making the tough decisions and made an error in finishing Tom up and Tom accepted the apology and wished him well. 

Business owners have to make tough decisions regularly. The best counsel that I ever received was not to outsource these decisions; own them. Your business culture is your culture, and you want your team to embody this culture. Tom was an iceberg employee; his MD only saw 10% of what he did and the team took him for granted. Take time to recognise the Tom’s out there – they are worth their weight in gold. 

Brad McMahon

Managing Director