Making the Cut

"It was a very difficult process," says Bruce Quade, chief people officer, who was involved in deciding who would stay and who would take the furlough. "We literally went through each person one by one."

In the end, the majority of those furloughed were associates and senior associates with less chargeability and training than their colleagues, but some principals were sent packing, too. From the outside it may have looked like a hatchet job on new hires, but ultimately "no level was left untouched," Quade insists.

It's a somber ritual faced by most consulting firms lately. In the first half of this year, 17,800 business services employees have been laid off, representing 3 percent of all layoffs in 2001, according to outplacement services firm Drake Beam Morin in Stamford, CT. Among the consulting firms that have let go or furloughed employees this summer are Keane Inc. (1,000), PricewaterhouseCoopers (1,400), A.T. Kearney (400), KPMG Consulting (550), and Accenture (1,400), to name a few.

The pressure to tap this sacred reserve of cash has forced some firms to take a scalpel to their consulting ranks, while others apply a hatchet to the weakest links in each business unit.

Industry observers agree that cleaning house is a good thing for firms who've been bloated with miscellaneous staff since the Y2K heyday. But they also say that firms could do a better job in their layoff strategies.

"We're seeing them be somewhat psychotic about it," says Dean McMann, CEO of Ransford, consultants to the professional services industry, in New York. While some senior partners have been willing to save money by removing employees, they also may be sacrificing their brand with poor planning or knee-jerk reactions to the market, he adds.

How Did We Get Here?

Layoffs, furloughs, and other forms of "outplacement" are not new, nor are economic downturns in the consulting market. Firms have let go consultants every year for decades under the "up or out" mantra. The difference today is that people are watching. Media, message boards, and the availability of competitive information are making layoffs more public and less flattering, says McMann. But under current economic conditions, the inclination to hide layoffs makes the outlook for firms look worse. What's more, the bloat of consultants hanging on at firms since the late '90s finally burst, and those who can't be retrained must be dismissed.

What's Wrong

One way firms are hurting their brand is through poor communication with employees and recruits about the who, what, when, where, and why of a layoff or furlough. "I give them all a D-minus in that area," McMann says.

Firms that mask layoffs as routine performance reviews or avoid difficult announcements to staff create an undercurrent of rumors. With every hint of a layoff, on-line consulting industry message boards swell with e-mails from despondent new employees asking if they'll be one of the unlucky ones on the chopping block. Numerous respondents purporting to have the "facts" respond with layoff numbers and locations that will be hardest hit. Another "insider" dismisses the numbers as baloney and provides his own information.

It's an all-too-common black hole that firms fail to navigate when undergoing layoffs, according to McMann.

"These are some of the biggest household names in the world and everybody is watching them," McMann says. Yet their quiet attempts to hide layoff facts, even from their own employees, is damaging their brand, "and your brand is now more valuable than any senior partner understands," he adds.

Another pitfall firms face is taking a hatchet to all employees who are currently on the beach. "You have to have a clear plan not to cut the muscle, just the fat," says Terry Gallagher, president of Battalia Winston International, which helps consulting firms assess their talent and recruit senior-level professionals. Consultants who aren't billable today may still be contributing to the thought leadership of the firm or may have great client relationships. "You have to be careful that the executive management group doesn't make decisions in their ivory tower without pulling in the partner most familiar with his staff's capabilities," Gallagher adds.

What's Right

Meaningful performance measurement systems are making difficult personnel decisions easier. But in tough economic times, firms are not only ranking employees according to performance, they are also raising the bar on expectations.

At the beginning of each year, immediate supervisors at Arthur Andersen Business Consulting in Chicago give each consultant a plan for developing specific skill sets, which are assessed semi-annually. Consultants are also subjected to engagement and technical competency reviews. Managers and partners give annual reviews. The lowest performers are then counseled out of the firm.

"The idea is that we should be consistently, at all times, counseling out nonperformers. That strategy hasn't changed," says Dennis Riegle, Andersen's chief talent officer. "But today we are aggressively culling the nonperformers. There's a fine line between raising the bar on performance to stay, and a furlough."

At DiamondCluster and Deloitte Consulting, from three to six percent of consultants are counseled out annually after poor performance reviews, but DiamondCluster's Quade adds, "In tough times, the number goes up a little bit."

A.T. Kearney always set its performance bar high, but this summer they foresaw fewer projects in the short term, too much "capacity," and virtually no voluntary attrition, which forced their bar to rise even higher.

"If you look at the total attrition number, voluntary and involuntary, it's probably not that much different than it has been in the past. But you had to force it a little bit, because the attrition, which is usually five to ten percent voluntary, just disappeared," explains Milo Siegel, vice president at A.T. Kearney in Chicago. As a result, the firm laid off 400 employees in July.

Wanted: Human Capitalists

To ensure that they are keeping the most valuable skill sets to meet clients' upcoming needs, firms are hiring a new breed of HR specialists — human capitalists — to help extract those best skilled for the next one to three years.

"These are people who can see the forest for the trees," says Battalia's Gallagher, whose firm has placed 12 to 15 human capitalists this year at top consulting firms. The position, which typically commands a $300,000 to $400,000 base salary, is usually responsible for determining staffing in entire regions, not just single offices. The job requires skills in consensus management, being able to think strategically, building collegial relationships, and "dealing with a lot of ambiguity," according to Gallagher. PricewaterhouseCoopers and Cambridge Technology Partners have human capitalists within their ranks, to name just two consultancies using this approach.

When it comes to hot skills, HR professionals say that solid fundamentals will always be in biggest demand. "There are foundational skills in consulting that won't ever change: very smart people, great problem-solvers, great communications skills, and a good understanding of business and technology," says DiamondCluster's Quade. These consultants can easily be retrained, but they'll also need "softer skills" like the ability to solve complex problems with smaller teams, which clients are demanding these days.

Consultants with deep technical skills can also adapt to change by having a working knowledge of business issues and the problems facing clients.

Retrain vs. Rehire

To constantly retool top performers, retraining has become a major initiative. The problem is, with so many technologically skilled workers hired quickly to meet the demands of the late '90s, little thought was given to whether they were willing or able to be retooled.

"Most firms don't have classes in Writing 101 or Speech 101" for teaching basic consulting skills, says Ransford's McMann, who adds that many firms missed the boat by not starting long-term retraining programs for ERP and other technical skills in 1999.

But some firms are helping their tech-savvy staff make the transition. At Deloitte Consulting, some 75 percent of its consultants have the necessary fundamentals for Deloitte's bread-and-butter consulting work, or hot new skills in CRM and e-learning that the firm believes they'll need in the next few years, according to Karen Morrell, vice president of human resources.

Deloitte will retrain most of the remaining 25 percent through its practice of formal education and on-the-job experience. "We look not just for a set of skills when we're hiring, but also individuals with the potential to grow and be retooled and do other things if their niche is no longer required by clients," Morrell says.

Tim Peterson, 33, a senior manager at Deloitte Consulting, retooled himself after five years of working on ERP strategy and implementation projects. In early 2000, he switch to e-business strategy, largely through his own initiative, and learned on the job by helping out with a project for one of the Big Three auto makers. For the last 18 months, he's been working on e-procurement package implementations. He's not worried about the future.

"Depending on where the growth area is, I feel very comfortable that I can easily adapt to the new environment and the new set of challenges because I continue to develop the core set of skills that make me a good consultant. I'm not worried about it. If things change, then I'll retool and shift," Peterson says.

Those with specific technology skills are also given the opportunity to retrain, Morrell says.

Still, a small portion of Deloitte consultants will be counseled out after performance reviews. Morrell doesn't expect this year's outplacement rate to exceed its normal average of three to six percent.

Sidebar: Going Forward

Firms are looking for a variety of business and technology skills to sustain them in the next one to three years.

• At A.T. Kearney, recruiters won't stop culling the campuses looking for diamonds in the rough, but for now, experienced consultants with e-business awareness and the ability to lead project teams will have a competitive edge.

• Andersen will hold on to its consultants with initiative, adaptability, and the ability to take ownership, as well as rudimentary technology skills.

• Deloitte Consulting will prize its CRM, e-learning, and data warehousing experts, and retrain its best and brightest in the new skills.

• DiamondCluster plans to keep a balance of business and technical skills in its ranks, while maintaining its requirement of solid consulting fundamentals.

But all will continue to use the performance review process annually to weed out poor performers. "If you don't force yourself to think about who is really performing at the top and who is really struggling, pretty soon you become a pretty mediocre consulting firm," says DiamondCluster's Quade. "We make sure we're keeping our arc high."