Online Reporter
Employee Relations
Dr Request Machimbira
WHEN a company starts losing money, the board of directors quickly panics. They use their favourite knee-jerk reaction. They reach for the austerity toolkit, which houses the feared spanner — retrenchment.
It is convenient, it is quick. It shows shareholders “we are taking action.” But convenience is not the same as correctness. In most cases, retrenchment is not a strategy. It is an admission that management failed to see the problem coming.
When a business faces tough times, the boardroom conversation becomes uncomfortable.
Hard questions are asked. Where did we misread the market? Why did our product portfolio age? Why is our cost base misaligned with revenue?
That kind of introspection is painful. So, instead, we pivot on something we can control immediately: headcount. Retrenchment feels like action. It gives the illusion of control, but it requires zero reflection from management and zero accountability from the board that approved the bloated structure in the first place.
The performance of a business is a management issue. You cannot expect the very team that grounded the business to resurrect it by firing people. If they could not build it with 200 people, why do we believe they can save it by reducing the figure to 120?
If we must retrench, then let us at least govern it like the nuclear option it is. Management should be required to justify retrenchment to the board in an end-to-end business case, not with a one-page profit and loss impact that promises short-term savings.
The board’s job is to ask the questions that make everyone uncomfortable. At what point did structure and headcount become an issue? Was it six months ago or three years ago?
How long has it been an issue and why did we do nothing about it? How did the organisation end up with a bloated structure? Who approved it and what key performance indicators (KPIs) justified those hires in the first place?
Beyond that, the board must demand causality, not platitudes.
How exactly will retrenchment turn the company around?
How will a reduced headcount increase revenue performance? Cutting costs without growing revenue is not a turnaround. It is just a slower death. If management cannot answer these questions, then retrenchment is not a business decision. It is panic dressed as strategy. It becomes even more troubling when we see retrenchment processes that resemble stock management.
We have become so detached that we treat human capital like inventory on a warehouse shelf.
Here is the fundamental flaw: Retrenchment does not address the model. A model answers the question: How does this business make money? Who are we serving? With what products? Through what channels? At what cost? With what capabilities? Cutting 30 percent of staff does not answer any of these questions. It simply forces fewer people to do the same broken things faster.
Sometimes the business cries for help and it shows on the profit and loss indicator. But not every cry merits a cost-cutting intervention. Sometimes the business is crying for a remodel.
Responding with a guillotine when the patient needs surgery is not scientific. It treats the fever while ignoring the infection. Remodelling forces us to reimagine before we reduce. It starts with the product portfolio.
Are we selling what the market wants today? What must we kill and what must we launch? It interrogates the value chain.
Should we produce or distribute? Should we own sales reps or outsource distribution?
It looks hard at the revenue engine. Where is the margin actually made? Are we in the right segments, geographies and customer types? Most importantly, remodelling asks about capabilities. What skills will the future business need? Who do we need to hire, train or partner with?
This is the essence of remodelling: You redesign how the business works before you decide who works in it.
It forces management to build a new business case and it forces the board to test it with the same rigour they apply to an acquisition.
We have all seen companies that retrenched their way to closure and others that retrenched, then six months later, had to rehire the same people, offering even heftier packages, because they realised the business model still needed their skills.
That tells you retrenchment was done outside the business model.
It was an accounting exercise, not a strategic one. I am not suggesting retrenchment is never a valid business solution. In some cases, it is judicious and necessary.
A business that is 40 percent overstaffed for its revenue base will not survive. But it must be done with surgical precision, not with a machete. It must be the output of remodelling, not a substitute for it. This is not about ticking legal boxes in the Labour Act.
It is about asking a more fundamental question: “If this were a new company we were designing today, would this role exist? Would this department exist? Would this cost exist?” If the answer is no, then you cut. But you cut as part of building something new, not as a way to avoid building anything at all.
CEOs and directors, the market will not reward you for being fast.
It will reward you for being right.
The next time the profit and loss indicator flashes red, resist the reflex. Do not reach for the austerity toolkit first. Put it down.
Dr Request Machimbira is the executive director of Proficiency Consulting Group and the International Wellness Institute. For feedback, email request @proficiency international.com or phone +263772693404.
Instead, ask management to bring you two documents.
First, a remodelling plan: How will we change how we make money in the next 12 to 24 months?
Second, a people plan: What structure, skills and headcount does that new model require? Too many boardrooms are using retrenchment to avoid remodelling.
And too many businesses are dying with a “clean” profit and loss indicator. The truth is brutal: You cannot cut your way to growth. You can only remodel your way to relevance.
Dr Request Machimbira is the executive director of Proficiency Consulting Group and the International Wellness Institute. For feedback, email request @proficiency international.com or phone +263772693404.
