Within a few months of one another, Bell Canada announced it would be getting rid of 10,000 from its workforce, and the federal government said some 45,000 civil servants would be sacked! These are but two recent examples from a long list of similar efforts to downsize corporations and governments in order to face the pressing realities of the marketplace and crippling debts.
In the corporate world, do these efforts lead to good health and long-term viability? Often, they do not. In fact, there is reason to believe they can, over the long haul, lead to corporate anorexia. Thinner is not necessarily healthier. And crash diets of this nature break employer-employee bonds that may have taken years to develop, and may never be re-established.
There is enormous appeal for company executives to downsize—a new name for large scale layoffs meaning what it always has: people out of work. For most businesses, wages and benefits represent one of the most costly items on their statements of income and expense. They attract a lot of attention because they are big, and are perceived to be variable and replaceable. You can always hire new workers if you make a mistake. It doesn’t work, says Ronald Henkoff. “More often than not, one round of downsizing merely leads to another” (Fortune, “Getting Beyond Downsizing,” January 10, 1994). Petrocan and Shell Canada, among many others, are proof of this.
It doesn’t work because you haven’t really looked at the fundamentals of the business—the kind of examination restructuring requires. The same problems crop up again, and so you cut again. Cuts are easy. They take very little thought to accomplish. It is like a crash diet. You “look” great at the end of it, but you keep putting on the weight because your eating habits are still bad.
Downsizing is usually indiscriminate, cutting everyone, good or bad, wise or stupid. It is like using a chain saw, rather than a jig saw. The biggest problem, however, is morale. Those who are left behind to pick up the pieces are typically ignored, or are expected to work even harder, but with little or no helpful recognition of the stress under which they now must work. In one case after a round of outsourcing, and the threat of another, a vice-president said to what was left of his cowering staff, “You can expect your jobs to be up for possible outsourcing within a year. But in the meantime, I want each of you to give me 150 per cent effort. And remember, I’ll know if you don’t!” Henkoff comments: “Even a small amount of bloodletting can trouble an entire organization.”
As with clothing fashions, business too has its fads. Outsourcing is a current one. It is a kind of restructuring, but without the hard thought good restructuring requires. In an outsourcing arrangement, you have a third party take on those activities you think are not directly contributing to your bottom line, or which don’t add to the value of your “core” business. James Stanford, president of Petrocan, in justifying yet another chopping of some 700 employees, says: “The way we pay our bills or the way we service our personal computers isn’t something that will give us a competitive advantage” (The Globe and Mail, June 20, 1995). The employees you once had paying your bills or servicing your computers will now work for other companies (at least for a while) who specialize in those activities.
The benefits to your company apparently are painless. You immediately lose the employment burden of a number of employees. You get an expert who does nothing else but pay bills, for instance. Presumably, he is going to do it even better than you can because he does it for so many other companies. And lastly, you get flexibility in your costs. You can always renegotiate a lower price contract with the outsourcer if business turns down. The outsourcer—not you—then has the problem of how he will meet the challenge of declining revenues.
In addition to the distrust and resentment outsourcing arouses even in those left behind, you have the problem of an outsourcer who does business differently from the way you do. He introduces a rigidity in the process. And if you think you can easily fix it up by negotiating certain ways of doing business into your contract with the outsourcer, think again. You are now but one of the many clients he has to worry about. You will have to line up with the rest of them, begging for changes.
What Petrocan’s Stanford, and others, forget is that what makes a company unique is not merely the product it sells, but the way it does business. Its attitude to how it pays the bills and how it services its own computers says something about it even to the outside customer. A company is rarely able to represent itself as one thing to the external, revenue-producing customer, and be something entirely different to the “internal customer.” Unless you can get close control over the way your outsourcer is doing his business with your business, then you would be advised to carefully review the options again. Outsourcing is a fad diet.
Depending on the business, markets change all the time. Restructuring attempts to make a company’s structure congruent with new market realities. The change might be drastic or marginal. But if you don’t adapt, the business dies. Restructuring is the most difficult option facing corporate executives because, if properly done, it requires much hard work, soul searching, and creative thinking. There are too many appealing easy fixes to distract the executive gaze. Restructuring is the one option which, when coupled with a strong commitment to keep staff by redeploying them, leads to long-term corporate health. Downsizing and outsourcing, for all the talk about “core” activities, is really only negative thinking of withdrawal and retreat. Restructuring forces a company to look at the long term, to think about growth, not just surviving the economic downturns. Laying off people makes it look like you are doing something; that you are taking the tough road that others are reluctant to follow. Restructuring is quiet and unobserved. But you are actually doing something with it. You are laying a strong foundation for survival and growth.
It is a fact of life that markets do change, business does turn down, and cuts have to be made. No one should dispute these facts. The question is, how can we make those changes fewer and less traumatic to employees and to the business itself? There are no silver bullets, but there are some guidelines.
- Rather than simply cutting staff, a greater effort must be put into long-term strategic planning for such contingencies so as to avoid the “necessity” of laying off people.
- The survival and salaries of top executives should be tied to the success of the business. Board directors should be much more aggressive about getting rid of executives who fail, and getting rid of them without golden parachutes. Employees who have no say in the running of the business should not be the first to pay when things go wrong. High salaries and juicy bonuses are paid to executives, we are told, because they have great responsibilities. So let them bear those responsibilities.
- There must be greater participation from employees (who are stakeholders in the business as much as any stockholder or vendor), especially when restructuring and cost cutting is being discussed. Otherwise there will always be the flavour that this was “done to them.” Participation and empowerment must be more than show words on corporate value statements. How quickly these statements are effectively jettisoned when markets turn down!
- There should be a strong commitment to keep employees and redeploy them rather than lay them off. It is more expensive to redeploy, but less so over the longer term as it pays back in greater employee commitment to the enterprise.
Cost-cutting efforts, when aimed at that most tempting of targets, wages and benefits, and effected through firings, is a crash diet to be avoided. “There is only so much cutting you can do and still maintain the character and strength of your company,” says the chief executive of Hewlett Packard, a company with a solid and proven commitment to keeping its staff. Mass layoffs break the unwritten covenant of trust and respect that holds between an employer and a well-treated employee. The character and strength of a company comes from its dedicated employees who have a heart commitment to their work and to the success of their company. They share in its vision and take pride in contributing to its attainment, even if it takes incredible effort to do so. This kind of commitment is not bought. It is kindled by mutual trust and respect. But all that is virtually destroyed through downsizing efforts. Henkoff correctly comments: “If you can’t offer workers job security, how can you expect them to be committed to the future of the company? How can you be serious about empowering them when, at any moment, you may rob them of their livelihoods?”