Creative Downsizing Requires Strategic Intelligence

By Michael Maccoby

Research Technology Management; Vol. 51, No. 4 July-August 2008 pp. 60-61.

You are director of a research and development lab that has been key to your company's success. But times are tough, and top management is on a cost-cutting crusade. Your boss tells you that although the lab has done great work, you have to cut your budget 15 percent. You argue that this should be the time to increase R&D spending as Merck's CEO Ray Gilmartin did when his company's earnings fell, and that proved a good investment. But your argument doesn't change management's decision. So how should you decide what to cut, and how should you communicate this to your staff? Answering these questions will be a test of your strategic intelligence, including foresight, systems thinking, visioning, motivating, and partnering.

Whatever you do, your role remains the same: to keep on developing the company's ability to innovate, to create new products that succeed in the market. Now you have two immediate goals. One is to protect the lab's most promising research and development capability. The other is to maintain a motivated organization and avoid having the downsizing cause a corrosive climate of distrust that would undermine productive collaboration. If the technical staff hears rumors about the cuts, and inevitably they will, their minds and conversation will turn to self protection rather than innovation. And despite the downturn in the market, the company's future depends on your lab.

Technical staff trusts a leader who is not only competent, but also transparent and credible. Open communication is essential, but telling people there will be cuts will just scare them. You have to tell them what you plan to do and how you plan to do it. Start with your direct reports. You'll need their full support to advise you on the cuts and vouch for your credibility.

Two Criteria for Evaluation

Together with these managers, you should evaluate your staff with two criteria: past performance and future promise. It's important to retain proven performers and protect the people who are most likely to be innovators. The management team should agree on the trailing and leading indicators you'll use for the evaluations. These should be communicated to the whole lab.

Neither of these indicators are easy to apply. You can only partially measure past performance, especially when someone has collaborated with others on a successful project. While you may have sales figures for a product developed in the lab, you need some way of measuring the value of both intellectual contribution and effective collaboration. It's something like evaluating basketball players on the basis of both scoring and assists. But unlike basketball which has official scorers, you must rely on subjective reports about a person's contribution and collaboration.

Of course, it's even harder to determine who will be the innovators. This is a test of your foresight, your ability to predict future trends in technologies and products. You can strengthen foresight by following the business press, talking to researchers in other companies and universities and above all, meeting regularly with the product and marketing managers in your company. With them, you can brainstorm about what customers are asking for and what kinds of products they are not asking for but would buy.

Think Systemically

When deciding which professionals are most likely to innovate, you should be thinking systemically. Innovation often requires boundary-breaking collaboration among different disciplines. The value of particular individuals may depend on the presence of complementary experts. Also, you should be thinking about possibilities of partnering with labs in other companies and universities. This calls for designing the organization of the future, including the mix of skills needed. That vision should also describe how people will work together.

Marc Thompson of the Oxford Said Business School who has studied effectiveness in R&D labs describes the importance of social interaction for sharing knowledge and sparking new ideas. Effective labs bring people together by co-locating the people who should be talking to each other, designing lots of common space for conversations, and organizing meetings where people present their work and events with outside speakers. These interactions are motivating and facilitate partnering.

Should you invite your direct reports to vote on the evaluations? I don't think so, because if you did, they couldn't help but favor the people in their own units. You should ask for their evaluations, but you have been given the overall responsibility. You must make the decisions about who stays and who goes, but you'd be wise to explain fully your reasoning, including your view of the future and your vision for the lab.

Before you finally decide on your budget, consider whether you should include money for bonuses. An argument against doing so is that all funds should be used to protect jobs. But it seems to me that a more compelling argument is that you need to be thinking about motivating the people who remain so that they feel valued. You've made clear your criteria for evaluating people. Use that criteria to give bonuses to those people who have contributed the most to the company. Tell your people about the qualities and strengths you have observed during the process of evaluation, and share your vision of the great future all of you will experience. By doing this, although cutting your budget will still be painful to you and to many in the organization, the lab may come through it stronger and more focused for the future.

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This page was last updated Monday, 30-Jun-2008 16:33:35 EDT.