April 27, 2009, 11:03 AM — Like a tank, the recession continues to roll right over companies. Take Fleetwood Enterprises. Vacation trailers and modular houses don't sell when people are out of work and struggling with upside-down mortgages. Even if someone wants to buy, banks have clamped down on credit, making loans scarce. Fleetwood's sales have plummeted 32 percent from a high of US$2.4 billion in 2006, and the company has lost $119 million along the way.
So last summer, like many manufacturers, Fleetwood scaled back factory production. That wasn't enough, so Fleetwood is now going after big cuts. Before filing for Chapter 11 bankruptcy protection last month, the company had plans to close nine of its 27 factories in the United States and Mexico and lay off 760 of its 5,700 employees.
Across the nation, grim-faced executives are breaking similar news. Offices are being consolidated, plants shut, employees let go. Such maneuvers, of course, are intended to save money; Fleetwood expects to save $40 million per year. But achieving lasting results can take months of work performed largely by the IT staff--a behind-the-scenes scramble that is often underestimated by others inside and outside the company. It's not as if the press release and pink slips go out and savings pour in.
There are the obvious chores, such as blocking outgoing employees from corporate networks and redeploying computers. Often, when a facility is closing, IT has to set up new equipment at the remaining offices, such as a bigger data network to handle an increased volume of transactions that a now-closed location used to process, notes Steve Phillips, CIO of Avnet, an electronics distributor fighting to make $150 million in cuts.
But IT executives who made it through the last recession in the early 2000s say the current one's a doozy that brings new challenges.
Now smartphones and thumb drives are everywhere--hard to track and easily loaded with sensitive corporate data, says Mike Jackson, CIO at Rockwell Automation, which laid off 600 of its 21,600 employees in September and is cutting costs by $240 million. Another $50 million to $100 million in cuts are planned to begin in October.
The Sarbanes-Oxley Act (Sox), which didn't exist earlier, provides another new source of pain. At Fleetwood, for example, with other departments focused on consolidating workloads among remaining employees, IT must watch that new job descriptions and business processes don't violate Sox rules on segregation of duties, says Larry Smith, Fleetwood's vice president of IT. Yet Smith finds invigorating the challenges in downsizing projects where so much money is on the line. "This is where you prove you can really manage," he says.
Prove it, you must. The technology group must not become an obstacle to making real the millions in savings promised when companies close offices and lay off employees, says Anna Frazzetto, vice president of technology solutions at professional services firm Harvey Nash. "If CIOs don't step up, credibility diminishes," she says.
Smith and fellow IT leaders in hard-hit industries have a warning for their peers: Convey the scope of IT work involved in downsizing. More than ever, senior management is asking fewer people to do more. That includes the IT group itself, where budgets have been frozen or cut and layoffs have reduced the number of hands available for what Smith calls a "tidal wave of activity" unleashed by a companywide cost-cutting drive. (See "Make a Difference Before the Cuts Come.")
"You might have plant managers who make the hard decision and then are done with it emotionally and want to move on," he says. "The last thing I want to hear is 'We're done,' because we're not even started yet."
Pick Up PCs and Pull Wires
Although smart executives know that closing an office or factory isn't as simple as it sounds, only those who have done it know the complexity and nuance. CIOs should educate their CEOs and peers about what it's like on the ground.
With $3 billion in revenue, Arch Coal is one of the biggest coal mining companies in the United States, supplying the electricity industry with fuel to power the country. To concentrate on the most productive facilities, Arch is selling the rights to some mines or divesting them outright. The figure for Arch Coal's 2008 revenue in this paragraph was corrected on 4/1/09. View the correction.
In mid-2007, for example, Arch sold a mine in remote West Virginia to Alpha Natural Resources for $40 million. CIO Michael Abbene, sent someone from the desktop group along with three individuals from their local support contractor to West Virginia from Arch headquarters in St. Louis to disconnect Arch's server and 50 PCs from the corporate network. Of those machines, 19 moved with Arch employees to another site. The remaining 31 were handed over to the buyer as part of the deal.
First, all data on those 31 machines was moved to network shared drives prior to deletion and then backed up on a USB drive. With guidance from Arch's lawyers, certain geologic information was copied to another portable USB drive and given to Alpha. The team reset the administrator password on all PCs that stayed behind. Alpha had two or three people onsite at various times during the weekend to help. Arch also sent a person to the mine to review and pack up paper documents that were to remain with the company. While that handoff took two months, it can take longer. A 2005 deal to sell several subsidiaries that operated four mining complexes took seven months because the buyer had little technology of its own at the start. Arch agreed to provide IT services, such as site-to-site VPN capability, while the buyer set up its own systems, Abbene says. "They created a whole infrastructure that almost mirrored what we had."
When selling a facility, Abbene advises, the CIOs from each company should meet to go over the IT implications of the deal--from equipment and data disposition to deadlines--before anyone touches any systems. CIOs should then designate a project manager to orchestrate the work.
When Arch closes a mine, it generally puts together a team that may include local mine management, IT, human resources, accounting, legal, payroll land management, marketing and sales, operations or purchasing.
"Every situation is different. You must understand what the acquiring company wants to do," Abbene says. In a true closing of an office or factory, such as Fleetwood's factories in Willacoochee, Ga., IT has to disassemble the infrastructure. Dismantling systems entails more than flipping switches. In February, two of Smith's IT staff spent a week at the Georgia plants hoisting 100 computers into crates and boxes, ripping out wiring and crawling through ceilings and closets to gather up several routers and other pieces of networking equipment.
Smith tries to keep the dismantle team small, so as not to disrupt regular IT work at headquarters. If it's a big job that must be done unusually fast, he will sometimes hire a firm to help, especially when taking apart cabling, which is complicated and time consuming, he says. "There's a lot of just plain old physical work."
Before PCs and laptops are packed up, they are evaluated for reuse or recycling. If the machine has a new enough processer and can accommodate at least 2GB of RAM, Fleetwood will upgrade it--reimaging the machines with licensed software and redeploying them to employees in other facilities who had been using older systems. Shuttering a plant completely takes from 30 to 120 days, Smith says.
Sometimes, though, a closure isn't a closure. For example, a Fleetwood factory in Waco, Texas, has stopped making manufactured housing, but several service and sales personnel remain at the facility. Or a shutdown of a large plant may occur in waves, first cutting production to 50 percent, then 10 percent or less to use up remaining raw materials. Meanwhile, Smith's IT group has to know who's going away when, shut off access and maintain other systems. IT also has to figure out whether any networking equipment can be removed as excess and look at the network blueprint to see if firewalls need to be reconfigured now that fewer people are on the systems.
In other locations, assembly lines are stopped and those blue-collar workers let go. But administrative people have kept their jobs and been moved to another office. In that case, the data network servicing the remaining office may need a larger-capacity circuit to handle additional transactions generated by the people who transferred in.
"It may sound simple, but one major thing we struggle with, to get accurate information about, is what they are doing with a plant," Smith explains. "Skeleton crew? Close? Sell? If selling, what will be bought? Is there a service group or sales group still officing there?" He says he always has to ask several times, in different ways, "Define what you mean by 'close.'" Good information comes from good relationships. IT and project managers should talk to as many manufacturing colleagues as they can at least a few times per week to stay in sync with actual versus planned schedules, he says.
Let Employees Go--But Not Your Data
Technology now touches so many more areas than it did at the start of the decade that untangling and accounting for it all during downsizing--if not done methodically--overwhelms IT, says Jackson, Rockwell's CIO.
When making cuts, the most delicate work involves disconnecting laid-off coworkers. Their access to the company network as well as local applications must be blocked and their computing equipment collected, cleansed and redeployed. Not only are emotions high but so are legal implications. Unlike during the dotcom bust, smartphones and thumb drives are more prevalent. You can fit 32GB of data on a BlackBerry memory card. The devices can also be slipped easily into a pocket alongside one's personal items as a desk is packed up, putting proprietary information at risk. Get the mechanics of data and device reclamation wrong, and you open the company to legal problems.
Stephen Fox, an attorney at Fish & Richardson who specializes in labor and employment law, recently sued an executive who left his client's company for a similar position at a competitor. The client argued that this executive couldn't do his new job without using trade-secret information belonging to Fox's client. Although the executive wasn't laid off, what happened when HR and IT processed his departure serves as a warning to other companies, Fox says.
When the executive left, IT blocked his access to the corporate network but forgot to stop the e-mail program from forwarding his messages to his BlackBerry, which was his own personal device. He opened several of those e-mails, Fox says. Cutting off all access to company data must be swift and thorough, he says. Leaving accounts open or missing a step "makes you vulnerable if you ever have to prove in court that you truly do keep secrets that should be kept secret."
Rockwell has a strict policy about cell phones, says Jackson. He issues only BlackBerrys owned by the company and closely tracks who has one, he says. No corporate data is allowed on personal phones. As for portable drives, IT and the legal department do their best to educate employees on what's permissible to download, he says, but still, "it's virtually impossible to assure you have all that information." To address the roving thumb drive problem, HR stipulates in writing to departing employees that no corporate data may be removed from the company.
When Rockwell laid off about 600 people last fall, IT set up a command center to make sure nothing fell through the cracks. Human resources coordinated with IT to disable an outgoing employee's network access within moments of a manager delivering the bad news, Jackson says.
For each employee being let go, IT collated reports from its three asset management systems to be sure all company-owned cell phones, laptops and other devices were returned.
They got all the gear but it would have been smoother, he says, if the company had been using just one asset management package; it's consolidating now. Asset management systems are key to ensuring IT collects everything it should, says Frazzetto of Harvey Nash. The equipment itself is worth something and the material on it could be worth much more, she says. Every CIO has his own favorite tip about protecting information during a layoff. At Arch Coal, the accounts of outgoing employees in critical positions aren't immediately deleted. Instead, as a manager sits down with someone to tell him he's being laid off, IT, in its corner of the building, will change the person's system password. That way, e-mail doesn't bounce back to senders and the manager can later sort it and assign follow-up to colleagues as needed, Abbene says. An escort, who is usually the person's manager or someone from HR, will oversee the packing up of individuals deemed in "sensitive" positions, to help ensure they don't leave with portable drives, he adds. On Abbene's staff, one person in particular works with human resources on employee terminations. "Most of the time, she gets the word from HR before I do," he says. Discretion is critical, adds Phillips, Avnet's CIO. IT can do the work of cutting user access privileges invisibly to the rest of the workforce. In person, he urges his team, "Be honest and respectful to the employee. It helps them get on with their future."
Deadlines for this kind of work are aggressive to minimize disruptions, Jackson adds. "From a business point of view and a humane point of view, it's best to do it quickly."
Let Nothing Fall Through the Cracks
No one has it tougher right now than the IT group at Fleetwood. They're doing it all: closing factories, consolidating offices, moving handfuls of employees to new locations and laying off hundreds of blue- and white-collar workers in two countries.
To manage, the group treats each event as a separate project, opening service requests in Oracle's Siebel customer relationship management software. Each event template has six categories that Smith considers crucial: overall time line, network hardware, PC hardware, applications, security and Sox analysis. He gives business-unit managers weekly reports for each project, including percentage of the work competed in every category.
Sox concerns Smith because, he notes, no one had to worry about complying with it during the last recession. Sox regulations emerged, in part, to guard against financial fraud that compounded the 2002 downturn. This time around, as companies rush to respond to the dire economy, sometimes compliance isn't top of mind. Staffs are cut and survivors are handed more tasks to do, at times dangerously so. For example, an accounts payable clerk may take over the job of setting up vendor accounts, which used to be done by a colleague. But one person doing both jobs violates rules on segregation of duties, which say that no individual should control a business process end to end.
At Fleetwood, the IT group watches for those risks because other managers may be more focused on consolidating. "I tell all my people, from programmers to business analysts, to watch out for issues with controls. You see something, raise your hands," Smith says.
Once personnel are shifted around and their jobs are defined, he or another IT staffer will talk through the processes and systems involved to see if red flags fly. When they do, the problem can sometimes be fixed with a technology tweak--perhaps changing the order in which transactions run. When that doesn't work, IT will bring it to the business unit to work out a change of process, he says.
Smith has looked for software to model segregation of duties but hasn't found anything he likes. He advises other CIOs to stay on top of Sox all the way through a staff reorganization of any type, but especially during a cutback, when change can be chaotic. "There's only so much shrinking you can do without running into trouble."
Jackson's group at Rockwell tracks its consolidation work with Microsoft Project and Excel, noting who completed each step when: collecting hardware, removing software, wiping drives, redeploying, selling or recycling the machine. "The people on something like this tend to be same people we put on mergers and acquisitions. They just do it in reverse," he says.
Look Ahead to Better Times
When downsizing goes according to plan, savings materialize. After Avnet's fall layoff, several extra computers and laptops with life left in them were available, Phillips says. "Our PC spend in the first quarter was dramatically lower than it would have been."
Fleetwood normally spends about $1 million per year refreshing PCs. But because plant closures and layoffs have freed up machines, the company has spent "a fraction" of that in the last three years, Smith says.
Further, Smith expects to convert a key manufacturing system from a legacy VMS software platform to Oracle's JDEdwards and Siebel. To date, Fleetwood has either met or beat its schedule. "It's a terrible thing to say, but the best time for a major conversion is a downturn, when everything's quiet," he says. "It costs less, there are fewer plants to convert."
Still, even if IT's downsizing work is airtight and the projected savings materialize, it may not be enough. Some economists don't expect significant recovery this year, despite the combination of tax cuts, job creation and other stimulus measures that President Obama and Congress have enacted.
Time will tell for Fleetwood. Its shares were delisted from the New York Stock Exchange in January, after the company's market capitalization sank below NYSE's minimum of $25 million for more than 30 days straight. Fleetwood stock now trades over the counter, in pennies.
Smith, however, remains optimistic. "I've been working in manufacturing companies my whole career, 35 years. I've been through a couple of ugly downturns before. You have to stay positive and focused," he says. "This is where you figure out whether you can really manage or not. There's tons to learn if you don't get sucked into the black hole."