Responsible Restructuring: Creative and Profitable Alternatives to Layoffs

A medium sized securities trading firm, relying heavily on its employee's knowledge and creativity, experienced a major downturn in revenues and stock price after a decade during which employees generated excellent results and built customer loyalty. However, faced with the fact that employees accounted for more than half of expenses, top management sought the best solution. There were many different approaches to learn from: Merrill Lynch cut one in six employees world wide; Charles Schwab used layoffs only as a last resort; Lehman Brothers insisted on keeping staff in tact and even hiring new talent; Edward Jones kept all staff but cut bonuses. After 9/11 Boeing laid off 30,000 employees while Airbus reduced head count through attrition. As the economy weakened some firms seized the opportunity to strengthen their competitive position through a variety of strategies such as cost cutting, expansion, marketing, and acquisitions. Kodak restructured to compete in the digital era; computer based typesetting revolutionized the newspaper industry. But what would be the best strategy for the medium sized securities firm? This book provides a wealth of case studies and examples of proven alternatives to layoffs.

Layoffs are not only traumatic to those who leave but can affect the quality of work done by those that stay. For three years union workers at the Decatur Plant at Bridgestone/Firestone were on strike or working without a contract during which their tires prompted more complaints, compensation claims rose and the loss of 40 lives was attributed to the labor dispute. Each year Fortune magazine publishes a list of the best companies to work for - companies which satisfy all stakeholders. "High-performing companies do walk the talk when it comes to performance measure. It is clear that they are seriously committed to the human elements that contribute to their success."

Responsible restructuring relies on workers to provide substantial competitive advantage by adapting a wide range of practices such as training, information sharing, participatory management, flattened organizational structures, labor management partnerships, compensation linked to skills, and customer satisfaction. Chapter 5 "Responsible Restructuring - Alternative Strategies" is full of case studies and examples of strategies such as 'use downsizing as a last resort while reinventing your business' and 'do everything you can to manage survivors well' and 'generate good will, even loyalty, among departing employees' and 'provide unemployment benefits for employees whose hours are cut' and 'ensure employment security through redeployment' and 'ask for sacrifices from executives and employees'.

Chapter 6: "The Virtues of Stability" provides a lot of information on three companies. 100-year-old Lincoln Electric Holdings features high wages, guaranteed employment, few supervisors, a lucrative bonus system, and piece work compensation; Harvard Business School cites it as a model of corporate responsibility while others praise its innovative management practices. Core values at SAS Institute are: 'treat everyone fairly and equally; treat people with respect and dignity; make work fun; trust people to do a good job.' They focus on employees and customers, believing that if they find and keep the best people, everything else will take care of itself. The rags to riches story of Southwest Airlines that started in 1966 and by 2001 had become the most successful airline in history is reviewed. Top employers share three characteristics: clear vision; excellent delivery and execution of people-related initiatives; and highly engaged employees who are aligned to the business strategies of their companies.

Chapter 7 "Responsible Restructuring: What to Do and What Not to Do" starts with "Even though there is no one, right way to restructure, following the guidelines presented in this chapter has yielded positive results for companies and their workforces." It is highly unlikely that anyone can read this book without coming away with ideas for improving their competitive position.


Do you want the No-layoff Payoff?   January 11, 2003
 2 out of 4 found this review helpful

Downsizing remains very populair. It's easy to understand why. Whenever a company gets into serious financial trouble you have to rapidly increase revenues or to bring down costs. An easy choice: everyone knows that future costs are far more controllable and predictable that future revenues. So costs are cut. And what better cost to cut than labor costs? In many companies these costs represent a large proportion of the total fixed costs. So what to do according to this logic? Fire employees!

BUT DO DOWNSIZINGS HELP? OFTEN THEY DON'T
In many cases downsizing does not lead to fast and lasting improvement of the financial situation of companies, nor to improvment of their share price. Research has demonstrated that extremely successful companies often offer a high level of employment security (see Pfeffer, 1998; Collins, 2001). But to my knowledge this book by Wayne Cascio is one of the first to present systematic longitudinal research on the effects of downsizing. The most important conclusion: companies that downsize are not more profitable than companies that don't and often end up hurting themselves. This book gives several reasons for this:

1. DOWNSIZING WITHOUT IMPROVING. Many downsizing companies have no vision on structurally improving the organization. The only thing they do is make the organization smaller. Many problems that previously existed remain. Several new problems are added. How could profit improve?
2. UNFORSEEN COSTS OF DOWNSIZINGS CAN BE SKYHIGH. Cascio sums up a large number of direct and indirect costs of downsizings.
3. DOWNSIZING TOO OFTEN AND TOO SOON. Cascio's research shows that many managers see personnel as a cost that should be minimalized. They ask: what is the minimum number of people we need to run this company? This mindset made these managers downsize often and easily. This hurts loyalty, commitment and and a negative morale that hurts productivity.

The opposite is also true: offering employment security lead to loyalty. This loyalty leads to so-called Organizational Citizenship Behaviors (OCB's): doing more than is asked, behaving honestly, working together, helping eachother.

WHAT TO DO?
The following combination of practices proves to be far more fruitful:

1. PREVENTIVE PLANNING: do everything you can to identify early warning signals and respond quickly to prevent problems from growing.
2. FIRST, APPLY CREATIVE ALTERNATIVES TO DOWNSIZING: in times of trouble, do everything you can to avoid the need to downsize (alternative ways of bringing down costs and improving revenues).
3. IF NOTHING ELSE WORKS: DOWNSIZE: make it clear to everything that downsizing is a last resort.
4. IF YOU DO IT, DO IT GOOD

Cascio descirbes a number of companies that were confronted with very hard circumstances and that successfully applied alternative stragies to downsizing.

Charles Schwab & Company used downsizing as a last resort after first having done the following: 1) stopping projects en saving al kinds of costs, accompanied with intensive communication efforts, 2) managers decided to cut their own salaries significantly, 3) personnel was encouraged to take unpaid leave, 4) specific days were chosen to be voluntary days off for personnel that did not have client contacts on these days. Only after these steps did not lead to sufficient success, a limited downsizing was done. Cisco Systems does everything it can to create goodwill or even loyalty with fired people. Cisco lents some of them to non-profit organizations and pays part of their salaries. As soon as the market allows for it, they want to rehire them. Reflexite Corporation's intention to avoid downsizing is reflected in their so-called Business Downturn Grid, a plan in four stages that is used when the company faces hard times. Its starting point is to provide full openness in every stage about problems and actions to be taken. Employees are laid off only in the fourth and last stage (which the comany until now did not have to do by the way). Some other companies that are mentioned are: Compaq Computer that invested heavily in communicating with and training personnel when aftern downsizing, Intel, Chevrontexaco, en 3M that invested much in retraining and redeploying personnel to avoid downsizing, Acxiom, Inc. where personnel was (successfully) asked to volunteer to cut their salaries in return for company shares, Sage Software, Inc. that paid much attention to personnel planning, Louisiana-pacific Corporation where personnel took the initiative to cut cost drastically. Two other extremely successful companies that are extensively described by Cascio are software company The Sas Institute and Southwest Airlines. These companies operate in turbulent markets but are examples of (employment) stability and financial success.

CONCLUSION
Sometimes laying off personnel can't be avoided. But this book shows that companies that invest in personnel and that do everything to void downsizing profit form a no-layoff payoff. This book provides many examples of steps that can be taken before laying off personnel. It is a must for top managers, HR managers, and students of management and organization and of human resources management. It's easy to read and very practical.

Coert Visser, ...


A Good Read!   January 9, 2003
 2 out of 2 found this review helpful

University of Colorado-Denver management professor Wayne F. Cascio says your company will make more money during tough times if it finds a way to grow with its current employees instead of laying them off. Citing ample research (just see those careful footnotes and all those charts and graphs), he argues that it is simply good business to treat employees as assets to be developed, so they can help your organization reach its goals. If you downsize them out the door, you lose their expertise and commitment. Cascio cites companies that restructured successfully - Compaq, Cisco Systems, Sage Software - to illustrate different approaches. He wraps up with a critical bit of training: how to communicate internal information about the company's plans to restructure, always a touchy matter. We from getAbstract refer owners, top executives and human resource managers to this book because they will appreciate its combination of hard facts and how-to guidelines.


CHARTING A BETTER WAY TO SUCCESS IN HARD TIMES!   October 17, 2002
 2 out of 2 found this review helpful

This book challenges the traditional knee-jerk response of the cost-cutting mentality and charts a better way to organizational success in hard times. Based on extensive research on the approaches companies take to restructuring, Cascio has found a huge distinction between those that see people as a cost (the downsizers) versus assets to be developed (the responsible restructurers). The book presents an analysis of the financial consequences of alternative restructuring strategies in terms of profitability and attractiveness as an investment. Cascio exposes the myths about downsizing and presents the hard facts. He examines the approaches of the responsible restructurers, i.e., high-performance work practices...and explores the practices and experiences of many companies. The final chapter illustrates what to do, and not do, when restructuring. Stern's Management Review finds this book rich in insights and sound advice-very highly recommended!