Off With Their Heads: Fixing Failing Companies

(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

senior management.

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.

4 comments

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  1. which s/he rides hard and puts away wet.

  2. I can/could

    Explore the options of free non-polluting supressed energy.

    Collect research and disseminate supressed disease cures.

    Survey local homes for heating loss and suggest mediations.

    Build automated machinery for twisty “energy saving” lamps and correct their built in lifetime shortages.

    Lobby for local farming and against frankenfoods.

    I get five weeks vacation to attend a spiritual retreat aimed at the exorcism of evil currently in full control of planet earth.  There is a minor stipend for beer used for meditative processes plus an allowance for small devices to counter the destructive electro-magnetic fields.  Yes, it has become far more than simple tin foil hats.

  3. a huge part of the problem since Reagan has been that Senior Management was encouraged to look for short-term profits over long-term corporate growth.

    I’m not even going to go into the whole clusterfuck in derivatives, CDOs, CDSs, etc.  Just…corporate management in general was encouraged to throw double-digit profits to stockholders, and not worry about beefing up the company’s products, or anything else.

    In short: throw the baby out with the bathwater, as long as it means we get payback in six months.  Who cares what happens after that?

    And so: offshoring.  Just one side benefit for stockholders; but the antithesis of what you want if you want to sell goods: I don’t know how to make this point any clearer than by referring back to Ford, who wanted to pay his autoworkers enough money so that they could afford to buy Ford cars.

    Since the resurgence of the ignorant, oblivious right, in the 1970s, the philosophy has been, starve your workers, offshore their jobs, and make buckets of cash for yourself.

    More recently even white-collar jobs are being offshored.

    gah, if you go around the world creating underclasses that can’t afford to buy anything…and your whole “product” is based on debt: as in CDOs and CDSs…sooner or later the whole system will come crashing down.

    This is Great Depression 101, high school version.

    This is NOT rocket science.

    But the Masters of the Universe were too stupid to figure it out.

    Lord save us all…Obama is listening to the Masters of the Universe who cheerleaded us into this mess in the first place.

    • dkmich on April 14, 2009 at 11:55 am

    Instead of ragging on teachers, why don’t they get on the principals and administration that allows bad leadership and bad teachers to exist?  Because it is about union busting and protecting the status quo, not change, not improvement.  

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