Belinda: In Roger Lowenstein’s article “The New Joblessness,” he reports that “the economy has shed 6.5 million jobs…far outstripping the 3 percent that were lost in the early ‘80’s.” He uses a term I have not heard, “labor hoarding,” when firms keep most employees despite an economic downturn, anticipating an eventual upswing. Apparently firms are not longer hoarding but have cut “into the bone.” That suggests a lack of confidence that business will pick up soon. What do you think leaders should be doing in this environment?
Kelly: I think the decisions companies are making now about what to cut and how far are some of the hardest and most important they’ll ever make. It’s in part a question of how to scale down costs (which usually means the workforce) in synch with shrinking revenues and profits. But it’s also about how to the retain capability and build the strength that will enable you to succeed when the tough times are behind us. A knee-jerk reaction to cut costs regardless is a desperate move; hanging onto staff you can’t afford is a risky and possibly foolish one. Neither labor hoarding nor deep cuts are right or wrong in themselves, rather the challenge is how do you do what you must (stay profitable), while continuing to build the strength of your business and emerge from the recession as a more competitive player.
Accenture published a study in 2003 that said, among other things, that companies that were most successful in the recession of the early 1990’s made decisions about both cutting and increasing investments based on a detailed knowledge of their strengths and weaknesses, and where those cuts or investments would provide the greatest strategic advantage to the firm. I read a great article the other day about Crutchfield Corporation and the steps they’ve been taking this year to get through this recession. No one was laid-off, but any positions that opened up due to attrition were either left open or used where they were most needed, so the workforce shrank. Salaries were cut 3% for employees, 5% for executives, 10% for the CEO, who started holding regular town hall meetings and setup a blog where staff could ask him questions about the company’s plans. They were thoughtful and smart about how to reduce expenses, how to get the most out of the money they did spend, and communicated clearly with employees
The thing is, times are tough and all companies owe it to
their stakeholders to survive and deliver good results, but the economy will
pickup again after the recession and unless this one is very different that the
last several slow-downs, it will happen faster than anyone expects.
