Important words from Jim Collins in Good to Great:

The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.

I’ve heard some people say that Jim Collins’ metaphor of “get the right people on the bus, and the wrong people off the bus” is advocating lay-offs as a central tool the managers strategy. That is an utter and complete misunderstanding. A careful reading of his chapter on “First Who, Then What” in Good to Great reveals the exact opposite. (Note: This misunderstanding does not just, or even mainly, reside with folks that are trigger-happy with layoffs; it also comes from sincere people that I’ve heard express concern about business ideas being wrongly used in the church. The great news here is that this is a misunderstanding of Jim Collins’ metaphor, and his teaching coheres with and upholds a biblical view.)

Further, and just as importantly, you need to correctly define who exactly are the people that need to be sent off the bus. It’s not people that are in a department you might be downsizing (which is a bad strategy most of the time in itself, but sometimes happens), for he says “If you sell off your problems, don’t sell off your best people.” (Translation: If you do have to close a department or division, keep the talented people who were working in that department, and are committed to the vision.)

The people you fling off the bus are the people that are not on board with the values of the organization. The people that are passionate for what the organization stands for are to be kept at all costs. You simply cannot have enough of such people.

Yet, so many organizations do the reverse. Their leaders see people, including those most passionate for the vision, as expendable based on how they as leaders are seeking to conceive of the strategy. They have failed to grasped Jim Collins’ core point: first who, then what. That is, you get the right people on the bus first (that is, the people who love the mission and values of the organization) and then, through an empowering management model (rather than top-down approach), you decide where to go.

Or, as John Wooden, one of the best coaches in history, had to say: you move from the people to the plays—not the reverse.

Lay-offs and top-down leadership are absolutely contrary to good to great management.

Well worth thinking about, from What Were They Thinking?: Unconventional Wisdom About Management:

When companies get into financial trouble, they often slash wages, benefits, and staff.

That boosts cash flow in the short run.

But it also drives essential talent — and customers — out the door as service, quality, and innovation vanish.

Tim Sanders has a great post from the other day called Layoffs: Unless Required for Survival, a Horrible Act.

I chickened out in titling my post here, opting for the ultra-safe “On Layoffs” because I have some more thinking to finalize in my mind on this subject. But Sander’s post is excellent. Here is the bulk of it:

I think it’s socially irresponsible to hire too many people during good times, only to lay them off when the business cycle goes South.  It happens all the time, I’ve seen it firsthand.  Today, many firms use layoffs as a way of telling Wall Street that they are being responsible – and frequently they get a short lived bounce in the stock price.  Note the phrase ‘short lived’.

In my view, socially responsible companies don’t need layoffs when they are still viable or making money. It is not an expense reduction strategy with an upside.  It should be a strategy of last resort, recognizing the pain and suffering that layoffs bring to its victims.

I would only want to add that lay-offs may also be necessary if a business legitimately needs to “prune” because of an intentional, well-conceived change in strategy and the way they are doing business.

But the fundamental point remains: It is really, really bad practice to hire too many people simply because “times are good.” You shouldn’t let your hiring — or spending — be dictated simply by the fact that resources are abundant.

This point is worth emphasizing in relation to expenditures especially: If something is a wasteful expenditure in bad times, it is probably also a wasteful expenditure in good times. Good times do not make wasteful expenditures less wasteful. There are no times for wasteful expenditures. This is not only right in itself, but if this were implemented more, there would be less need to cut expenses and lay people off when times get rough.

But the corollary of this is just as important to me (more important): If an expense or program is strategic, it is worth continuing in lean times just as much as in abundant times. Some things that are often viewed as “nice but not necessary if times get tough” are often in fact critical to long-term growth and success. Lean times should not be a justification for short-sighted cost-cutting. The book Profitable Growth Is Everyone’s Business: 10 Tools You Can Use Monday Morning does an excellent job making this point, especially in relation to marketing and promotion.

But there is a nuance here to my above comments. There are many more good and important things to do than there are resources. So sometimes good ideas cannot implemented because of real financial constraints. But then when the economy is doing well, the opportunity is created to do some of those things that could not have been afforded in leaner times. If those things can’t gain sustainable traction before a recession hits, sometimes there is no choice but to scale them back (unfortunately).

So I do believe that there are expenses that should be undertaken in good times that wouldn’t have been undertaken in leaner times. But the ultimate principle remains: Wasteful spending, or unnecessary hiring, is not justified simply because times are good. Likewise, don’t cut strategic, effective spending and strategic positions because times are tough.

The initiatives that are right to do are usually right in lean times as well as good times (see above paragraph for the nuances), and the initiatives and expenses that are ineffective to do are the wrong thing to do whether times are lean or abundant.

In good times, make decisions that can withstand the bad times; in bad times, don’t make decisions that you will regret when things recover — they will, in fact, likely delay your recovery and position you poorly when things do turn.

Update: Also see my post “Employees Are Not Overhead.”