(9 am. – promoted by ek hornbeck)
Time after time we see layoffs as the solution to a company’s woes. For example, of the 598,000 newly unemployed individuals in the US in January of 2009, 163,000 of these were laid off from the 500 largest US companies. Some lowlights:
Jan. 26: Following the acquisition of the small drug outfit Wyeth for $68 billion, Pfizer closes five factories and cuts 15% of total workforce (19,000 workers).
Jan. 26: Sprint Nextel pink-slips 8,000 workers–recording more than $300 million in severance charges but saving $1.2 billion a year in labor costs.
Jan. 30: Caterpillar increases previous layoffs from 20,000 to 22,110, and share price hits 52-week low.
Here’s the question: does this really help a company?
Here’s the answer: probably not.
Another question: what would help these companies?
Another answer: replace the management!
We’ve heard some whining about President Obama forcing out GM CEO Waggoner. Maybe he’s onto something?
A study by consultancy Bain & company suggests four key actions in companies that have successfully turned their performance around:
(1) Set high standards and lead by example.
(2) Put the right managers in place and give them real power.
(3) Focus on results, not on an elaborate change process.
(4) Do it quickly – tackle issues in parallel not in sequence.
Note the absence of cost-cutting by payroll reduction! These points in and of themselves do not make the case for canning management willy-nilly, but the report goes on to point at management as the heart of the matter.
Changing out personnel is a key component of
successful turnarounds. But too many companies
make the mistake of pursuing broad employee
layoffs instead of getting at the root of the problem:
senior management. Consider these findings:
A Bain & Company study of 288 Fortune 500
companies showed that the stock prices of companies
that laid off more than 3% of their employees
performed no better over a three-year period than
those of companies that made smaller cuts or none
at all. Companies that announced layoffs greater
than 15% of their workforces actually performed
significantly below average over three years. And
companies that announced repeated rounds of
layoffs did even worse.
Lest you readers thing the report is soft on line-employees… there’s more:
This is not to say that management should
never lay off employees. But it does suggest
that who you change out matters more than how
many. Indeed, our research of highly successful
turnarounds reveals that nearly all the most
successful transformers substantially replaced
Maybe we all knew this stuff all along. It is kind of interesting to see it in print from a consulting outfit operating in the reality-based world, though. As President Obama and his team examine banks and auto companies, we can hope they will rely on such reality-based principles.
Cross-posted, but I’m not sure why, at the GOS.