Reader Question: “No layoffs due to Lean” extends to “no demotions?”


In the Lean movement, organizations are often wise to have some variation on a “no layoffs due to Lean” policy, as I've written about before. Many healthcare organizations, including ThedaCare, have made this  commitment  quite publicly. Since Lean is about engaging everybody in system redesign and process improvement, it's understandable that people won't participate if they fear for their jobs. But what about other possible changes to specific jobs and pay grades?

Here is a question from a blog reader, used with permission and without identifying information:

We had an interesting discussion today regarding making a commitment to employees about no layoffs related to lean.  

We are making some changes to coding processes in a department and, once the improvement is in place, a portion of an employee's work will be eliminated.   This employee works two positions   – one lower paid position and one with a higher pay.   The higher pay is for the coding work, which will be eliminated.     As we move forward, we recognize that we will need to deal with these types of situations.    

In this case, we can find other work for the employee, but it may be at a lower paid job.   I can foresee in the future improvements resulting in changes to work schedules, etc.  as work is changed.

In our challenging economic environment, other forces might mandate a reduction in workforce at some point.

Any advice on how and when to define our philosophy in this area?   In other organizations, does “no layoff”   mean no change in schedule, salary, etc.?

How do other organizations using lean address the need for workforce changes that may not be a direct result of improvements?

We recognize the importance of not laying off staff as a result of improvement, but want to be cautious to not make commitments that we can keep.

Appreciate any suggestions for networking as we explore this challenge.

My initial thoughts (and I'd like to hear yours — so post a comment):

There's more room for judgment calls than easy answers here. I appreciate it when people don't want to make promises they can't keep.

Beyond “no layoffs” comes the grey area. We have to do what's right for the patients and the organization, but we also need to maintain morale.  I've seen organizations make tough calls about schedule changes or even moving people to another department. People aren't always going to be 100% happy.

I think a demotion or a pay cut is probably nearly as demotivating as layoffs. I'd be really careful with that. Easier said than done (especially easier said by me, since I'm on the outside).

A CEO at another healthcare organization said, in regards to their Lean approach and their “no layoffs philosophy” that the job of an individual may have to change, but the organization will protect that person's career.

I'm just an outside observer and consultant. It's easy for me to pontificate. What are your experiences with this, either in manufacturing or in healthcare?

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


  1. I don’t agree with the CEO who said “that the job of an individual may have to change, but the organization will protect that person’s career.” The company owns your job, you own your career.   Best to move forward in that direction.  

    • Respect for people I think would be displayed by working with each displaced individual to find the job that would suit them in their chosen career.

  2. That’s a big promise to keep. What happens to trust in management when outside forces result in loss of jobs?

    Another thing to consider. By assuming the responsibility to protect jobs, management is stealing that responsibility from employees themselves, which is an aspect of what Jim Baran is getting at above.

    The capability to create job stability and even growth via improvement requires a team effort, not just managements responsibility.

    I suppose I can see management saying, “We will not lay off because of improvements, if you agree to create job paths and opportunities for you and your peers.” Of course, lowering somebody’s pay is not a good incentive and making that the alternative to layoffs is extremely cynical and underhanded.

    • Bryan – that’s why the promise usually isn’t “no layoffs” but rather “no layoffs due to Lean” or ” no layoffs due to process improvement.”

      If there’s a business need for a health system to close down an entire clinic due to business conditions or outside forces, that’s certainly not a great situation, but it’s more understandable.

      Organizations that help “protect an employee’s career” will help shift or relocate those people into other clinics or business units rather than just letting them go. Sometimes it’s just some extra effort that’s required.

      Jim – yes, individuals own their own career, but I think it’s good that senior leaders would view employees as a long-term asset to the organization rather than a short-term expense. Maybe there’s a bit of the old “we’ll take care of you” mental model embedded in the CEO’s statement. Ultimately, you have to take care of yourself.

  3. Mark, I actually appreciate the “no layoff due to continuous improvement activities” approach. The organizations need to be able to tie this all together. To me, it doesn’t mean that there are no layoffs if business climate changes.

    Where I think health care organizations AND other organizations embarking on Lean go wrong with re-deployment is they attempt to use it as an opportunity to remove bad performers from an area. The intest behind re-deployment is to redeploy the BEST. If there are performance issues, that is a leadership challenge!

    I can say this from the outside as well…

  4. Good comments above. When I talk about the “no layoffs” situation, I separate business conditions from improvements. Business conditions may dictate reductions, but improvements will not result in layoffs. Having said that, however, if less people are needed as improvement activity dictates, a plan must be in place – can it be done through attrition, through retirements, through turnover, through moving people with portable skills?

    • The Toyota/GM plant in Fremont, CA, (NUMMI) had a policy that when an improvement resulted in only three people needed at a work station on the line (0.96 Takt time) where four were needed before, the team selected the lucky person who now got to join a general improvement team that dealt with larger projects where they made a bigger impact and had more fun/challenges. When a space opened up on the line, they went back. Since every hourly worker on the line was paid the same, the issue of loss of pay didn’t arise.

      I suspect the demise of NUMMI was because of GM’s troubles and management ineptness, not because of productivity. They had the highest productivity and best quality of any plant in the GM system.


  5. I agree with Dean. It’s critical to delineate between layoffs as a result of an improving environment vs. business decline. And personally, if business conditions require layoffs, I want to keep the employees who care about continuing to improve the work.
    As for the thought of demoting someone or lowering their pay as a result of improvements — if this happens to someone on an individual basis, they will associate the demotion/pay cut with improving the work and which will negatively impact how they behave in further kaizen. Its a very slippery slope that ultimately ends up in complacency.

    • One caution is that even if layoffs are truly due to “business conditions,” they wil often be associated in people’s minds with Lean or other process improvement approaches.

      That’s why the organizations with broader “no layoffs” philosophies have to manage very consistently and conservatively to make that possible. In other words, don’t over hire, don’t over expand, etc.

      • I completely agree. Having a “no layoffs policy” needs constant focus and takes a lot of work and management. I just don’t know that *many* organizations really understand that when they make the policy.

  6. If you were that employee, getting part of your job eliminated, the higher “paying” part, what do you think you would perceive as fair and just? So, this company doesn’t need “coders” any longer. What skills does that employee have that can be employed elsewhere to restore their feeling of worth and create an opportunity to restore their value to the company (regain their former salary position)? Can they be retrained to do something else? I think this is that responsibility that management has, to find where that person (not the asset) can go to remain fulfilled in their work. People can learn to do anything they want to do. It’s how we’ve survived as a species for the last 25000 years. If you simply remove their job responsibilities and pay and leave them on their own, you certainly will get demotivation. Apply respect for people, and this situation will have the best possible outcome.

    • Using ThedaCare as an example again, they make quite an effort to retrain people for other roles or departments. They will sometimes rotate “freed up” people through a rotation in the ThedaCare Improvement System group to let them participate in improvement activities, something that better positions them for returning to “regular work.”

  7. Companies make the “no layoffs due to Lean” commitment for a couple of reasons:

    1. It represents the Respect for People principle which is core to Lean
    2. It is necessary to prevent sabotaging of further implementation

    Does eliminating an actual area of responsibility due to an improvement violate #1 or #2? I don’t think so, but as they say, the devil is the details. How it is handled makes all the difference.

    Suppose the employee was “demoted” with a corresponding pay cut, and management had a flippant attitude “Sorry about that, but you know, times are tough..” That approach would probably violate #1 and #2.

    But suppose the employee had the responsibility removed, but had their pay grandfathered, and management demonstrated both genuine appreciation and genuine distress about the fact that this difficult situation ocurred. Imagine if management would use the savings generated by the process improvement to send the employee to training so their talents could be employed elsewhere. Would this approach violate #1 and #2? Maybe…but I think it’s a lot closer to an ideal we ought to be aiming for.

  8. To my way of thinking, no job loss doesn’t mean no job change. I understand that people may not be happy with changes to their jobs but given the dynamic nature of business, it’s tough (if not impossible) to guarantee.
    I would separate changes to a person’s job with changes in their compensation. Even though a person’s job has been changed, we need to show them due respect and sometimes this means making special compensation adjustments. These tough decisions are consistent with the first rule of leaders which is: figure out ways to stop de-motivating your employees.

  9. Hi Everyone

    There are three reasons why truly successful organizations practise the no layoff or demotions rule.

    First is they want to keep their workforce motivated, and actively involved in continuously improving operations. Both layoffs and demotion kill morale and performance.

    Second is that they are intending to produce more of something in the future, thus keeping staff in the short-term will lower your costs to have them when you need them later. They allow time and growth to absorb the excess staff the improvements created.

    Third is simple economics. If you want to be able to sell more products or services in the future than you are doing now, you have to help grow the economy, as well as your company. Layoffs and pay cuts shrink the economy by more than their real savings to the organization, and unless some else hires those people you have just cut your own market. There is a little discussed rule of life and economics called grow or die. When GM closed their first plant a professor I had predict their eventual bankruptcy for their simple violation of that rule. By cutting those jobs they started a series of events that cut their viable marketplace, because there was no viable replacement for the economic activity created by those jobs.

    There are far more good reasons to follow the policy (the above) and only one short-term bad one for not following it (makiing a one time quick extra dollar in profit).

  10. A comment from linkedin:

    I like the notion of long-term mutual prosperity. Who benefits from a demotion or a cut in pay? It’s pretty tough to argue that the “demotee” does. If we ask the worker to bear some pain, are shareholders and managers doing the same? Can taking advantage of position or power be a foundation for respect?

    If we eliminate the need for non-value added activities, work assignments inevitably change. If we can get our accounts payable activities done in half the time, someone is going to be doing something different. How can we change our thinking so that creating value vs. being busy with the non-value added activities that we want to reduce or eliminate isn’t a demotion? It is, after all, what our customers want to pay us for!

  11. Indeed, this can be a tough one. One premise of Lean change is that nobody will lose their job due to Lean improvement and this is fundamental: Lean in any business requires the participation of everyone in that business in order to be successful, there would not be many people signing up for supporting Lean initiatives if a clear outcome was going to be the loss of a job…..theirs or someone else’s. This does not necessarily (at least in my mind) mean that the job itself won’t change in some regard but, to Mark’s point, these changes likewise need to be carefully thought out as this too can be a big de-motivator. I don’t think that as a business owner/manager it is possible to guarantee that someone’s job will never change in any way—it can change for lots of reasons other than Lean itself. So, as we make our improvements how do we do the right thing for ALL of the stakeholders without making promises we cannot keep?

  12. Comment from Pascal Dennis via a LinkedIn Group:

    Policy should be “Nobody will lose their job as a result of Lean improvement.”

    Lean improvement means jobs will change — usually for the better. People who do NOT want jobs to change are dreaming, to be blunt.

    As for compensation, I’d avoid pay cuts, which can indeed as demotivating as lay-offs.

    Your communication strategy is central to getting the right message across.

    “We’re going to get stronger by focusing on our biggest problems, by reducing waste & variation and by involving everyone in improvement. Your job WILL change. You’ll have more opportunity to add value and to solve problems. Your pay will not be cut. In fact we’ll do all we can to give you the opportunity to make more money, by helping us grow and get stronger.”

    Something like that.



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