SuccessFactors CEO Lars Dalgaard continues to be a larger-than-life personality.
Dalgaard’s move late last year to dramatically downsize his HR software firm was on par with the company’s super-sized spending on sales and marketing in recent years.
And his comments about the cuts have been at turns callous toward those losing jobs and refreshingly contrite.
In a recent interview, Dalgaard told me that expanding SuccessFactors’ headcount as quickly as he did was, in retrospect, misguided.
“I blame myself,” he said last month. “I am the one who made a mistake.”
Amid the quickly deteriorating economy, SuccessFactors’ headcount fell by 173 people in the fourth quarter of 2008, from 769 to 596. The 22.5 percent reduction is much deeper than the typical corporate downsizing. Even in this dreary business climate, firms generally don’t lop off more than 10 percent of their employees.
The scale of SuccessFactors’ cut raised eyebrows about whether the action would hurt the quality of its people management software or the level of service it provides customers. Dalgaard, though, said customer service was untouched, and the engineering capacity remained as strong as ever. The layoffs, he said, focused on areas including sales and marketing and new software implementations.
It also seems on the surface that San Mateo, California-based SuccessFactors may have violated California’s WARN Act. That law, which is tougher than the federal WARN Act, applies to establishments with 75 or more employees, and requires employers to give affected employees and government officials 60 days’ notice in advance of a plant closing or mass layoff. A layoff of 50 or more employees within a 30-day period, regardless of the percentage of the workforce involved, generally triggers the rule.
California records show SuccessFactors did not give notice of a layoff.
Dalgaard said SuccessFactors avoided violating the state law. He indicated that the cuts were made in a piecemeal way over time, as the economy worsened. “We were taking out people every week of the quarter,” he said. Also, the company said, not all of the cuts were made in California, and some people left the firm voluntarily.
SuccessFactors declined to say how many people were laid off from the San Mateo headquarters in the fourth quarter of 2008. It also declined to say how many employees currently work in that location, saying it has never broken out headcount by geography.
Even if Dalgaard and crew carried out the downsizing legally, the move initially carried a whiff of the way the firm shifted blame to its workers in the course of reducing its headcount by dozens of people in early 2008. At that time, the company terminated workers in conjunction with the chopping of a type of business group, but claimed the move was not a layoff . Instead, SuccessFactors portrayed the action as axing low performers.
Dalgaard has acknowledged laying off workers at the end of 2008. But in a February 9 conference call with analysts, he suggested those cut loose were less-deserving employees.
He noted that SuccessFactors used its own Stack Ranker product--designed to “quickly identify low performers to let go during difficult times"--in the layoff.
“Did we cut into any of the A-players?” Dalgaard asked rhetorically in the call. “And the fact is, we did not. And so that’s kind of the key. You are left with the absolute top performers.”
Later, he added: “I think the morale is … spectacular because these are a bunch of winners that really want to go and change the way the world works for a living.”
It may not be a new practice for businesses to try to shed poor performers during a downturn. But Dalgaard’s comments effectively rubbed it in for those laid-off SuccessFactors employees. And it’s not clear the claim about “A-players” is accurate.
Terrance Seto was cut late last year as part of the trim, after about a year and a half at SuccessFactors. Seto, who worked to configure product demonstrations, said that earlier in the year he had gotten a handwritten letter from Dalgaard praising him as one of the top performers in the firm.
Seto criticizes the way SuccessFactors hired so rapidly earlier in 2008--it added about 75 people between the end of March and the end of September--only to lay off many workers at the end of the year.
“It’s kind of disrespectful to the employees,” he says.
Seto also wishes the company would admit it erred in growing so fast.
Such a confession was not to be seen in SuccessFactors’ press release about fourth-quarter results or during the related conference call with analysts. The company portrayed the headcount haircut as a wise, if difficult, move that was part of a shift from “hyper” growth mode to a more moderate growth mode.
But in my recent interview with Dalgaard and Dominic Paschel, the firm’s director of public and investor relations, the tune changed some. They conceded that good people were lost in the reduction. And Dalgaard showed a rare willingness among corporate executives to admit a mistake and take personal responsibility for it.
“I feel like a total loser for having to take the cut,” he said. “That was the worst thing I’ve had to do in my life.”
I’ve appreciated the way Dalgaard combines the ambitious capitalism of his adopted America and the socially minded humanism of his native Denmark. For better and for worse, both those qualities were on display in this downsizing. It’s the latest incident in which Dalgaard has seized the spotlight. And I suspect there are more to come.