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HBR CASE STUDY

What’s the best

strategy for Astrigo? The Layoff
by Bronwyn Fryer
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 If Astrigo Holdings is to remain competitive, 10% of its workforce must
be cut. Who goes, and who stays?
HBR CASE STUDY
The Layoff
by Bronwyn Fryer
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
“Why aren’t layoffs taught as a subject at busi-
ness school?” Robin Astrigo asked himself.
“Boards expect executives to do them well, but
nobody knows how.”
He leaned his forehead against the cold win-
dow and stared out at the building across the
street. The wind was whipping tiny, icy flakes
sideways through Chicago’s alleys of skyscrap-
ers. Robin couldn’t see through the dark glass
windows of the offices of the big consulting
firm opposite him, but he wondered whether
the atmosphere in there was freezing too.
The analyst call that morning had been
excruciating. Astrigo Holdings had missed its
earnings estimate by 20 cents a share. Profits
had dropped by double digits, regardless of
efforts to slash inventory and expenses.
Despite aggressive promotions and price cuts,
the Astrigo home-improvement stores were
losing sales to cheaper retailers with far worse
customer service.
HBR’s cases, which are fictional, present common managerial dilemmas.
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“Brace yourself,” the head of investor rela-
tions had warned him after the call was over.
“The headlines tomorrow are going to be
brutal.”
Robin thought of his deceased father. “Pop”
Astrigo had started out as a hardscrabble mid-
western lumberyard owner. A fiscal conserva-
tive, he steadfastly believed that a strong cash
position was crucial to the company’s health.
But he also taught his son that to keep its
reputation for great customer service, the com-
pany had to treat employees well. Robin had
run the firm capably since his father’s death in
1996. He always insisted on keeping several
million dollars in the bank just in case the
company needed to make critical acquisitions.
Though the recession was hitting the firm
hard, Robin didn’t want to risk Astrigo’s future
health by burning that cash now.
Robin bit the roughened skin around his
thumb. He had to rein in costs further, and
page 1

Bronwyn Fryer (bfryer@
harvardbusiness.org) is a senior
editor at HBR.
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fast. An aggressive reduction in head count
looked like the only course of action. Pop
Astrigo had been forced to let people go in
past recessions but had loathed taking such
an action. A large layoff would be crushing
for the families of the affected employees—
and for all the towns where Astrigo stores had
long been a central fixture.
“Sorry, Pop,” Robin thought. He wondered
what the board would think. If he didn’t do
this right, his own job could well be on the
line.
He sat down at his desk and pecked out an
e-mail to his executive committee: “Manda-
tory meeting, 4 PM sharp.”
First In, First Out, or Rank-and-Yank?
“Did you see this?” Morris Meyers asked Lisa
Warren, pulling the morning Tribune from his
overcoat pocket and pointing at the headline.
“‘More Shrinkage in the Clothing Business.’”
He paused, then laughed—a big, bursting
Texas laugh. “Who writes this stuff?” he said.
Lisa rolled her eyes as they waited for the
elevator. “You’re such a sucker for a bad pun,
Morris,” she said.
Inside the cherry-wood-paneled elevator,
Lisa pulled off her wool cap and shook out her
hair as they zipped up to the 16th-floor lobby
of an exclusive dining club. Morris, Astrigo’s
CFO, had invited her, as the head of legal, to
meet him for lunch there. He’d reserved a
room where they could talk without being
overheard by anyone.
During the meeting the previous afternoon,
Robin had asked his executive committee to
form teams of two to work through possible
layoff scenarios. Lisa and Morris had paired up.
With his loud guffaw and weakness for cowboy
boots, Morris could be off-putting, but he had
a sense of humor and called a spade a spade.
Lisa respected him, in no small part because
Robin did too: The CEO liked to call Morris
“the sharpest pencil in Chicago.”
The elevator doors hissed open to reveal a
large room with panoramic views of Lake
Michigan, the Chicago River, and the Wrigley
clock tower. After checking their coats, Lisa
and Morris followed the hostess to their
private room.
From their seats, they admired the view of
the shining office towers. In the distance was
a building, sporting an enormous “Pont Trois
Investments” logo, that had recently emptied
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The Layoff •• •HBR C ASE S TUDY
its corridors in a massive downsizing. Closer
by stood a gigantic unfinished building, a
motionless construction crane tilting mourn-
fully toward it. The real estate developer erect-
ing the building had gone broke, abandoning
the project.
“The construction crane,” Morris observed
drily, “used to be this town’s official bird.”
Turning back to Lisa, he laid out the finan-
cial picture. Based on his analysis, a 10%
workforce reduction would generate enough
savings to keep profits in line with Wall
Street’s expectations. “Robin doesn’t want to
cut back more on store associates, because
that affects customer service,” he began. “So
we need to start with middle management.
That’s where the low-hanging fruit is. I’d
propose a first-in, first-out policy.”
Lisa raised an eyebrow. “You mean offer an
early retirement package? Wouldn’t that be
expensive?”
“Not necessarily,” Morris replied. “It wouldn’t
have to be large. I know guys who practically
grew up at Astrigo. They’ve made pretty good
money over the years, what with stock splits
and all. They’re not too far from retirement
age and probably have put away a good stash.
They’re just counting the hours. Besides,” he
added, cocking his head, “it’s the best way to
get rid of the deadwood. We have a lot of it
around.”
Lisa frowned as the waiter placed a steam-
ing bowl of tomato bisque before her. “You’d
need to be really careful. You don’t want
charges of age discrimination. Remember
what happened when Meese Brothers laid off
those IT workers? All those gray hairs slapped
the company with an $18 million lawsuit.”
Suddenly, Lisa thought of something else.
“Wait, didn’t you cut your teeth at Rashank?
How about a performance-based layoff like
they did, based on December’s evaluation
cycle? We could eliminate the lowest 10%.”
Morris cut into his steak, took a bite, and
chewed thoughtfully. In his experience, a
“rank-and-yank” system was a mixed bag.
“People were competitive and scared all the
time. We saw some pretty harsh office poli-
tics. And the ranking system required a lot of
work,” he said. “On the other hand, it was
good for the company because we developed
a higher-performing workforce overall.”
“Well, that’s what it’s all about, right?” Lisa
replied. “March or die.”
page 2

Last In, First Out, or Lose a Unit?
Bob Slater yawned. It was just before 7:30 in
the morning when the executive director of
strategy sat down with Marzita Vasquez, the
head of HR. He and Marzita had promised
each other they’d meet early in the day to
hash out their analyses for the committee
meeting the next morning.
“OK, so I ran the numbers, and I checked
with Morris,” Bob said. “I told him that I think
we should adopt the simplest layoff policy
possible, and that’s last in, first out. That way,
you don’t have to pay people a lot of sever-
ance. We haven’t got the time to do anything
really complex. And it’s inherently fair. Every-
one understands that you have to work up to
seniority.”
Marzita was aware that Bob thought HR
didn’t make much of a tangible business
contribution. For her part, she didn’t have
anything particular against Bob. He was
conscientious, but he was basically a left-brain
numbers guy. She’d have to talk to him on his
own ground.
“Bob, we’ve been running lean relative to
other retail companies our size,” Marzita be-
gan, “but looking at this issue as a tactical
cost-cutting measure is shortsighted. Not only
do we throw good people out of work, but
layoffs shout to our customers, ‘Look at us.
We’re in trouble.’ They hurt morale, and that
hurts customer service and, ultimately, our
investors.”
“I’m listening.”
“I think the problem can best be solved by
looking at our overall strategy,” she continued.
“We’ve overreached. I mean, what were we
thinking when we acquired Prugh Furniture?
We could save the money by selling it or shut-
ting it down. It’s time to refocus on our core
business. This whole discussion is the wrong
one to be having.”
Bob narrowed his eyes. She was moving
into his territory now. “Marzita, a lot of
thought and time and effort go into acquisi-
tions,” he said coldly. “We don’t make them
lightly. I don’t think Robin would go for
getting rid of any strategic business units. A
last-in, first-out policy is simply the easiest,
cheapest thing we can do.”
“I understand, but this isn’t just a financial
transaction,” Marzita continued. “Think about
Yukio, that young woman we hired a few
years ago to run new business development.
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The Layoff •• •HBR C ASE S TUDY
We courted her hard. She’s a first-in-class
MBA from a top school, and she’s full of
bright ideas. Two of our competitors were
after her, but she decided to come with us
in the end because she likes our corporate
values. If we do a blanket last-in, first-out
plan, people like her would be out of here!”
Marzita’s face started to redden as she went
on: “We work too hard to recruit great talent
to let someone like her go. How do we attract
good people in the future if we fire our best
new hires?”
“Marzita, let’s just focus on what we need
to do to cut costs right now,” Bob said coolly.
“We can worry about tomorrow tomorrow.”
Marzita stared at the floor. “How can the
company’s strategy head be so cavalier about
the future?” she thought. “Isn’t keeping an
eye on the long term Bob’s job?”
It’s All About Morale
“Sorry to interrupt.” Julie Cox, a member of
Astrigo’s PR team who handled internal com-
munications, had tapped on the door of Sushil
Bhatia, the young vice president of marketing
and strategy. “But can you chat for a second?”
Julie didn’t look well. She told Sushil, who
was one of her close confidants, that her
husband had just been marched out of the
financial services firm he worked for. “It
sounded awful, Sushil,” she confessed, nearly
in tears. “They just axed his whole depart-
ment. They called him into a conference
room, told him he was being cut, handed him
some papers to sign, and escorted him back to
his desk. He packed up his stuff, and then
they marched him out of the building—in
broad daylight, with everyone watching.”
Sushil furrowed his brow. “I’m so sorry to
hear that, Julie.”
“What do you think is going to happen to
us?” she asked. “I know things are tight around
here. Do you know if there are layoff plans in
the offing?”
Sushil looked at her, unsure of what to say.
Of course, he’d heard the rumors too, but he
felt that a big part of his job was morale man-
agement. “You can’t get the best out of people
if they’re anxious about losing their jobs,” he
told himself.
He invited Julie to sit down in one of the
armchairs in his office. Taking the chair next
to her, he said, “Look, Julie, I’m not on the
executive committee, and I can’t tell you what
page 3

they’re thinking right now. I can tell you that
this company has been in business since 1962.
We’re not alone; every retailer goes through
layoffs, and historically we’ve managed to do
better than many. I’m sure that if we’re forced
to resize, people will get good severance pack-
ages.” He tried to give her a reassuring smile.
“The important thing for you is to not let
yourself get overanxious. Emotions are conta-
gious, you know.”
“I know you’re trying to say the right thing,
Sushil,” she responded bitterly. “But I have a
feeling management has already looked at the
options. I’m sure they’re going to do a slash-
and-burn. And—assuming I’m not axed too—
I’m going to be one of the people who have to
deliver the bad news.” She frowned. “I’ve been
mulling over euphemisms for ‘layoff.’ Best to
avoid the L-word. Maybe we should call it ‘cost
improvement’ or ‘simplification.’”
She stood up and walked toward the door.
“Heck, maybe we should call it a ‘fitness plan.’”
The Values Statement
After she’d left, Sushil thought for a moment,
then put in a call to Robin. They’d always been
able to talk honestly, and he knew Robin
trusted his judgment.
“I’d like to offer a little unsolicited advice, if
I may,” Sushil began.
“Sure, Sushil. Shoot.” Robin had taken him
under his wing and made it clear that he
thought of Sushil as a rising star. Though noth-
ing explicit had been said, Robin had enter-
tained the thought that with some grooming,
the young man might possibly be his successor
one day.
Without naming names, Sushil informed
Robin about the discussion with Julie. “I under-
stand that we need to cut costs, but people are
already scared and demoralized,” Sushil said.
“You’re going to ask me why we have to
have a blanket layoff policy in the first place.”
“Well, I’m looking at that plaque on my
wall—the same one that’s on yours. It’s like a
pledge of allegiance if you read it aloud. In-
dulge me for a minute.” Sushil read: “Astrigo is
made up of 12,000 teammates whose highest
goal is to ‘Take Care of Our Customer.’ We ac-
complish this by selling the highest-quality
goods at the best price, with the best cus-
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The Layoff •• •HBR C ASE S TUDY
tomer service, in the world. Great customer
service begins with talented, innovative team
members.”
“OK, go on,” Robin said somewhat impa-
tiently.
“We have a policy of holding a big cash re-
serve for acquisitions. It’s a little hard to jus-
tify a big bank account at the same time that
we’re eliminating jobs. Have you considered
taking steps that would let us stay truer to
our values?”
“Of course, I’m thinking about what’s right
for our customers, our shareholders, our asso-
ciates, everyone. I keep asking myself what
my father would do.”
“I know it’s really painful,” Sushil said, “but
it seems like we should consider something a
bit more imaginative. Just pick a number. How
about a 5% across-the-board pay cut, maybe a
bigger one for people making six figures?
We’re not a union shop. We have the flexibility
to do it. If we get pushback, that’s OK.”
“I appreciate your input, Sushil,” Robin
said. After a long pause, he added, “The exec-
utive team is running the numbers. I’m not
sure what all our options are yet; we’re going
to discuss them at a meeting tomorrow morn-
ing. But I tell you what. I’d like you to come
to the meeting tomorrow. It would be a good
development experience for you.”
A Tough Call
The next morning, Robin listened impassively
as his team walked him through all the various
options and angles. When the hour was up, his
assistant tapped on the door.
“Robin, the chairman is on the line.”
Robin looked gratefully around at the group.
“It’s really important to me that you’re all here
to see us through such a tough time,” he said.
“We will do the best we can—but there’s no
good way out, and we will never be thanked
for our choice.”
What’s the best strategy for Astrigo?
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