By December 17, 2008 9 Comments Read More →

Another Article on Firms that Don’t Use Layoffs

Some Firms Cut Costs Without Resorting to Layoffs – WSJ.com

Here’s a follow up to my recent post on layoffs (or not to layoff). There was a lot of good discussion and I’ll amplify my point that it’s got to be part of your corporate DNA to manage in a way that allows you to avoid layoffs. If you haven’t built your company around that philosophy, it’s probably impossible to avoid the need to “cut heads” by suddenly deciding at some point “we want a no-layoff philosophy.”

The WSJ article had other examples of no-layoff firms.

As layoffs mount amid the slowing economy, some employers are cutting costs without axing jobs.

Hypertherm Inc. has never laid off a permanent employee in its 40-year history. A 20% downturn in sales in recent months led the closely held maker of metal-cutting equipment to eliminate overtime, cut temporary staff and delay a facility expansion, says Chief Executive Dick Couch.

Managers are transferring employees to busy segments from those with less work. The Hanover, N.H., company also may bring some outsourced manufacturing in-house to keep its 1,100 workers busy, Mr. Couch says.

I really disagree with the idea thrown out by the Oliver Wyman consultant:

Some workplace experts say layoffs are a useful part of the business cycle, allowing employers to weed out poor performers, increase efficiency and promote a high-performance culture. Layoffs “are not inherently bad,” says Mark Nadler, a partner at management consultancy Oliver Wyman’s Delta practice. “Some people…are just more crucial to the survival of the organization than others.”

That’s so anti-Deming… “perform highly or you’re fired!!!” If only life (and management) were that simple. If you truly have to get rid of a poor performer, why mask it mass layoffs? Because of legal issues? Do layoffs really drive true efficiency? If you just get rid of people and don’t have any process improvement, sure people “get by” but what corners get cut in the process? How does quality suffer? Seems like a pretty irresponsible (and ineffective?) way to improve efficiency. Any comments on his last statement??

Heidi, on the WSJ comments section, said this well and it mirrors my thoughts exactly

The comment by Mark Nadler that layoffs allow companies to get rid of low performers shows how lazy management at some companies has become. If a person is a chronically low performer, they should be trained, counseled, redirected and then possibly let go well before a lay off. If companies work with their staff to ensure best performance all of the time, then perhaps they can avoid some of the down turns. Using layoffs is like using an atomic bomb to kill a housefly.

As Andy suggested in his comment to my earlier post, the constant hiring and firing has costs that are real, but hard to quantify in the “here’s how much our layoffs are going to save us” analysis.

Others say employers often underestimate or overlook the costs of layoffs. Anat Lechner, clinical associate professor of management at New York University’s Stern School of Business, cites expenses for planning, legal fees, severance, outplacement and redistributing work. Layoffs also reduce productivity among survivors and cost a company institutional knowledge, she says.

Add the cost of recruiting and training new workers when business picks up, and layoffs “simply do not make any sense,” Ms. Lechner says.

The article also lists other things that companies do to cut costs to avoid layoffs, some painful and maybe also harmful to the business in the long term.

  • freezing hiring
  • offering voluntary retirement packages
  • cutting hours (or going to 4×8 work weeks)
  • reducing salaries
  • delaying raises
  • raising employee health-care contributions
  • cutting bonuses (Dr. Deming might ask “did they really help to begin with?”)
  • cutting employer contributions to retirement plans
  • cutting budgets for training, travel and other perquisites (does cutting training also kill organizational knowledge?)

Oh, don’t forget taking the batteries out of clocks. Probably not a recommended strategy.

This was the real eye-popper to me (having only worked in industry since the mid 90’s):

Until the recession of the early 1980s, both companies and employees considered layoffs temporary, says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School. As the idea of permanent layoffs gained acceptance in the late 1980s and 1990s, employers stopped trying to avoid them, Mr. Cappelli says. Today, many companies argue that alternatives such as across-the-board salary freezes and budget cuts are more harmful, because they can drive away top performers.

So if it hasn’t “always been this way,” it can change back to the way it used to be, right? Do we have “Neutron Jack” to thank for this social acceptance of mass permanent layoffs?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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9 Comments on "Another Article on Firms that Don’t Use Layoffs"

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  1. Anonymous says:

    Having worked in manufacturing (for a company with former GE leadership) and now in healthcare, it’s very difficult to compare the two because I’ve found the values to be so different. Although there are no absolutes, I found manufacturing more competitively and financially driven; helathcare more driven by patient care, yet keeping in mind financial viability. My personal preference, and values, align much more with healthcare – essentially, nothing matters more than people, be they patients or employees. My experience in a quasi G.E. run company was one much described in the Neutron Jack link. Callous, ruthless, live for the corporate best interest. Emphasis on individual performance versus focus on process improvement – right down to the peformance management system. I have come to respect and admire people in healthcare as some of the most selfless and caring people I have ever known. There are many good souls in manufacturing, too, but unfortunately, their values, as a general rule of thumb, especially those of the Neutron Jack mold, do not align with my own.

  2. Anonymous says:

    The notion of layoffs having more social acceptance – don’t know if we “thank” Jack specifically for that or not, but I agree that layoffs are, unfortunatly, more accepted these days. Sad what this has done to any semblance of organizational loyalty that once might have existed here in the U.S. It’s hard to see how organizations truly want employees to be loyal when they know at any time they could be shoved out the door. Perhaps the other side to this coin is that it’s no longer considered a negative for someone to have a long list of employers (almost job hopping) these days on one’s resume because of the “new” climate. Sad.

    Keep Dr. Deming’s philosophy in the forefront, Mark! He’ll always be a giant… It doesn’t matter which way the organizational management philosophy pendulum seems to swing…

  3. Walter says:

    I personally believe lay-offs can serve an important function in limited circumstances.

    I’ve worked in a corporation where there was little-to-no culture of dealing with chronic poor performance. And this practice permeated through multiple layers of middle management.

    In addition, it was very easy for people to “hide-out” in mediocrity, while at the same time feeling entitled.

    Lay-offs are a forced way of dealing with both of these problems.

    They also create the opportunity for healthy self-reflection about what you do to create value for your company.

    With that said, if layoffs are not few and far between, any positive effects will be dwarfed by the negative.

    Walter Reade (from Wisconsin)

  4. Anonymous says:

    Walter, shouldn’t the process of getting bad performers out be separate than “layoffs”? When I think of “layoffs” I think of the company having to reduce force because of business or financial problems… why not get rid of poor performers just because you should? Why tolerate the mediocrity? That’s a management failure — either not coaching people to improve or not getting them moved on.

  5. Larry says:

    Great blog post Mark. Thinking of Deming’s 14 points is critical during this time in the economy. Remeber point #8 Drive Out Fear. How can management remove fear in the organization when they are using layoffs as a measure for success? Ultimately it is fear of layoffs that is going to drive the recession and not the actual bottom line of companies. Once organizations realize that management is the cause of poor performance, as Deming pointed out, then they will be able to transform themselves. Deming’s philosophies can help a lot of these organizations now.

  6. Anonymous says:

    I’m going to disagree strongly with the first anon. I’ve also worked in manufacturing in healthcare.

    You said “Callous, ruthless, live for the corporate best interest. Emphasis on individual performance versus focus on process improvement – right down to the peformance management system.”

    There are LOTS of sweet, caring, wonderful people in healthcare. Most of them aren’t the least bit process focused. Their managers sit in ivory towers and are just as callous and ruthless toward patients and employees as any Montgomery Burns type factory manager might ever be. It’s worse when they exhibit that behavior in a “caring” industry. The healthcare managers and leaders couldn’t be more out of touch with their people and the “gemba.” It’s really sad and disgusting. Employees don’t get enough support or help and they’re blamed when something goes wrong. The managers give incentives that drive individual focus, not value stream focus. There is no teamwork, just finger pointing.

    Why do these abused workers stay in healthcare? Exactly because they’re such sweet wonderful people. They deserve better from their leadership. I’m frustrated. I hope healthcare leaders at the top start “getting it” instead of just running lots of lean projects.

    Oh, and many hospitals are laying off staff to “cut costs.” So you think healthcare mgmt is better than manufacturing??? Not likely.

  7. Anonymous says:

    Layoffs are a sad event in any company. I’ve been cut myself a few times including a voluntary one to save a job for a man with a family to support.

    Do I like them? No. But, not every industry has the opportunity to sweat out a few years of expected poor sales demand for their product, i.e., commodities and other natural resource industries by shuffling people.

    Some manufacturers have new product pipelines but what about cement plants and similar products where the housing market dried up in 2007/08 and now looking at commercial doing the same in 2009/10 as existing businesses close leaving plenty of empty strip mall stores and other companies scale back on building too?

    Beat on Jack all that you want but the fact remains that GE was made stronger and improved in many ways under his watch.

  8. Mark Graban says:

    I won’t belabor the point with another post, but here’s another article on ThedaCare and their no-layoff “philosophy” (not a “policy”.

    LINK

    “ThedaCare’s approach is part of its commitment to eliminate waste and improve quality by drawing on techniques first developed by Toyota Motor Corp.

    Those techniques rely heavily on employees finding ways to do their jobs more efficiently. At the same time, employees are unlikely to do that if it means they could lose their jobs.

    “Nobody would get very enthusiastic about improvement in that world,” said Dean Gruner, a physician and chief executive and president of ThedaCare.”

  9. Mark Graban says:

    Posted with permission of an emailer — thoughts?

    Why don’t you ask your readers if they think it’s OK to fire an employee if they are not performing no matter if times are good or bad… even after being given a fair chance and opportunity to improve. This would go along with your recent posts about how weeding out bad apples during down turns is chicken sh*t management (my words of course).

    Full disclosure: I recently let a guy go who made about about $200k per year and didn’t want to travel, engage sites, etc. He didn’t want to do anything but sit at home and manage via conference call. So, I put him on a 6 month performance improvement plan and gave him a chance to change. He didn’t want to… so we let him go (and paid him a huge severance which is unbelievable but I digress…).

    Thoughts?

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