Perception Isn't Reality

Sept. 1, 2001
Is downsizing really a good move in these lean times?

Perception Isn’t Reality

You could make a case that Wall Street analysts and many wealthy investors are obtuse, or at the very least ignorant. These “experts” on operating a company reward some questionable decisions.

For example, every time the economy heads a little south, they reward managers for “downsizing.” Now, some companies are in trouble, made some bad decisions, and can’t financially support their current employment level. Some — not everyone; so why reward everyone for the same solution to the profit problem?

Most companies have cut all the fat they can afford. Few companies we interview are overpopulated. Instead, most tell us they can’t find enough skilled labor to handle current workloads. They’re automating to try to compensate, but there are just some functions best done by people. So you have to wonder, just what are analysts thinking?

As just about any engineer knows, you can’t automate every task or function. For one thing, it’d be too expensive, which would drain those precious revenues and profits.

Remember when employers talked about hiring robots to automate all assembly tasks? They would never complain, never take a sick day, have child-care emergencies, take a coffee break, go to the bathroom, take a smoke break, etc. A big problem, however, was that robots couldn’t handle articulated motion as well as a person. And it would cost millions or more to develop such capability. In the end, it turned out a person was a lot cheaper. (Analysts, you ought to like that.)

Sometimes downsizing is a management tool. For example, managers may change corporate culture to improve competitiveness or to shake out complacency. But this sword must be wielded carefully, especially during a slowing economy.

Management studies have pointed out the fallacy that layoffs or downsizing actually help a company. The American Association of Management, for example, found that about 60 percent of companies that downsize either see no increase in profits at all, or experience a decline in profits.

We won’t mention the other costs of downsizing. These are realized after the economy recovers, which it will. Costs like finding new labor to replace the employees let go. Costs like training, retaining your best employees, recapturing customers after your company has ticked them off because of poor service. No, we won’t mention those long-term costs, only the quarterly ones are important.

Analysts are already in trouble for their recommendations during the dot-com craze. How come they bought the pitches about these “new” business models that promised to spin gold out of thin air?

Yes, I know hindsight is 20/20, but they should have known better. And it doesn’t speak well of investors either who supposedly made their money through business. They should have had first hand experience at operating a business (something analysts apparently lack) and should have known they were being pitched a rich vein of fools’ gold. (Anyone mention greed?)

Controls and systems are properly viewed as a capital investment. Employees are too. They work with controls and systems, handling motions no automation device can do. They also offer creativity and intelligence companies must have to survive and thrive. In many cases, employees have a lot more intelligence for what it takes to regain profitability than many analysts and investors. Maybe management should ask them about solutions before compulsively downsizing to appease the analyst and investor “gods.”

Leslie Langnau

senior technical editor

[email protected]

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