MANILA, Philippines—Owing to the deteriorating profit performance, cost-cutting during a downturn is often necessary to ensure future competitiveness. As a result, some companies immerse themselves in downsizing and other cost-cutting measures merely to prop up short-term earnings instead of addressing the real problem.

In many cases, it is a lack of “right people” that is blocking growth, creating additional performance pressures and further diverting the attention of management toward “short-term thinking”—turning this practice into a vicious cycle.

The problem is exacerbated when the downsizing and other cost-cutting measures results in losing more “right people” in the company, thereby—increasing the percentage of wrong people. To make matters worse, companies resort to freezing training and staff development programs, further damaging morale and perhaps the company’s reputation among prospective employees.

Before downsizing, consider asking these questions: What kind of problem is your company trying to solve? Is there a concern about what happens when business activity bounces back? Would you be in a better position to “cash-in” on the recovery if you had kept your people compared to your competitors that resorted to layoffs?

If so, alternatives—such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancelation of business trips and/or other discretionary expenses may be preferable to downsizing.

Opportunity #1: Get wrong people off the bus.

There’s nothing like a good economic downturn to get rid of dead wood. A sagging economy can be an opportune time for management to deal with performance problems. Though often difficult to execute, an overarching justification tends to make getting wrong people off the bus somewhat easier.

Opportunity #2: A time to upgrade talent.

Rather than freezing all hiring and employee-development programs, companies would be wise to use this period to upgrade talent, and better engage existing staff. Part of this might mean plowing back to the company a portion of the cost savings into, for example, selective recruiting and development programs to redesign jobs to be more engaging.

A company that emphasizes talent in cost-cutting efforts can strengthen its value proposition to existing and prospective employees, making the company more attractive to work for and strongly positioning itself for growth during a turnaround. The benefit is that a strong employer brand significantly helps the company that continues to engage in selective recruitment, even as the company cuts personnel costs elsewhere.

Studies abroad have shown that although overall levels of recruitment may have fallen, the quality of workers hired rises in recessions. And opportunities to find, attract and hire retrenched talent may be particularly valuable during an economic downturn. For example: The massive downsizing in the financial-services sector has made available to nonfinancial companies a large pool of highly educated professionals who until that time, might not have considered jobs outside their previous industries.

Opportunity #3: Redesign jobs to be more engaging.

A job’s level of responsibility, degree of autonomy and span of control all contribute to employee satisfaction. Downsizing has the effect of getting people to use existing resources better by increasing the span of control for challenging management jobs, in turn, increasing the engagement level in these redesigned jobs.

My immediate past employer for 15 years is IBM North America. In the mid-1990’s, as deteriorating financial performance forced the elimination of several thousand jobs, IBM approached downsizing by redesigning roles and responsibilities to improve cross-functional alignment and reduce duplication. This resulted in a more collaborative environment and, thus, helped increase employee satisfaction and productivity.

The key factors for IBM’s success were its focus on redesigning jobs and retaining talent at the outset of downsizing efforts while maintaining training and development programs which provided the necessary skills to perform in the redesigned jobs—a significant contributor to safeguarding morale and in sustaining long-term productivity.

It’s noteworthy that while incurring huge losses in the mid-to-late-1980’s, IBM did not give up its employee-development programs. While much of the credit to IBM’s financial turnaround was attributed to its CEO, Lou Gerstner, who came from outside IBM, the company’s consistent past investments in its people was the single most important factor in IBM’s return to profitability.

Opportunity #4: Retaining right people.

Before undertaking downsizing, IBM leveraged its performance-management processes to help identify the right people to retain. The practice of disciplined, meritocratic performance appraisals served the company well in making the right staff decisions. As part of this effort, IBM continuously assessed the types and availability of talent driving the current business value and several years forward, including identifying the types of talent that take years to replace or develop.

(Learn more about opportunities in talent management in an economic downturn at the 2nd Talent Management CEO Conference on May 26, 2009 at the Dusit Hotel. Globe Telecom CEO Ernest will speak on “Globe’s Talent Management Strategy: Opportunities and Challenges in a Downturn Economy.” Flying in from Hong Kong, Louisa W. Rosseau, the group managing director of Bó Lè Associates, the No. 1 search firm in China, will talk about “Do firms look for the right people among those laid off as well?” Peter Maquera, CEO of SPi Technologies will speak on “SPI’s experience in battling with the challenges of changing demographics within the workforce; and our actions when there is a mismatch in skill sets between the workforce and the qualities we are seeking.” Fred Uytengsu, Alaska Milk CEO, will speak on “Is Talent Management One Size Fits All? A Comparison of Talent Management Strategies between Alaska Milk Corporation and Alaska Basketball Team.” And celebrity talent manager, Boy Abunda, will speak on “Managing Primadonnas.” For more information, e-mail francodelrosario@sixsigmaph.com.)

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is managing consultant of Six Sigma consulting. Feedback at map@globelines.com.ph. For previous articles, please visit .)