Navigating a turbulent economy: downsizing can mean many different things--ranging from a staff reduction due to a short term economic downturn to long-term restructuring of the company's business model.

• Author: Scher, Kimberly
• Position: Cover story

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As senior financial decision makers, CPAs are inevitably involved in planning and executing job actions. When faced with turbulent economic times, company leaders must ask, "Has our company's basic value proposition fundamentally changed or have we just hit some economic headwinds and need to ride out the storm?"

It is often very difficult for business owners to acknowledge that their company is in decline and their business model is no longer working, according to Dr. Thomas Von Lehman, managing director of The Meridian Group, a management consulting firm in Pittsburgh. Too often, business owners prefer to think that "next year will be better" and react to financial pressures by cutting overhead through staff reductions year after year.

"Shrinking and growing the company's workforce over an extended time period is painful and has a terrible effect on employee morale," Von Lehman notes. This approach can cause your best staff to leave on their own and may make it nearly impossible to attract good people.

Staffing firms are a good way to deal with workload peaks and valleys. "Just as a staffing service can help displaced employees find new work, it can provide managers with skilled supplemental workers to maintain continuity and prevent burnout on the part of remaining full-time staff," advises Eugene Lodato, division director of Robert Half Management Resources in Cleveland. "This is also a good option because using professionals just when they are needed most prevents the need for future layoffs."

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For a company whose business model is less than optimal, an economic downturn will certainly accelerate its decline. "As market forces change, successful companies must change with them," Von Lehman notes. He recommends that business owners evaluate their business model every three to five years. As part of that evaluation, they should determine if their diminished profit is due to a short term economic situation or if it points to a need to realign the entire business. "The answer to this question will guide the types of staff adjustments needed," he added.

CHARTING A NEW COURSE

Von Lehman cites the example of R.G. Barry Corporation in Columbus. The $100 million publicly-traded comfort footwear company hired The Meridian Group as its turnaround consultant in 2004 with Von Lehman serving as interim president and CEO. "The company's core business of supplying slippers to major retailers was steady and predictable. There was nothing wrong with its value proposition," Von Lehman said. "The key issue was the company's inefficient business model to supply the market."

Elements of the two-year reorganization plan included outsourcing manufacturing and distribution, reducing layers of management (there were 23 vice presidents, each earning more than $100,000 per year), controlling expenses and creating a market-focused business model. The company returned to profitability in 2005. Hear more details from Von Lehman about R.G. Barry and other turnarounds at The Ohio Society's Corporate Conference for CPAs, March 17, in Columbus.

A restructuring is...