Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, October 31, 1993 TAG: 9310270260
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: By JONATHAN MARSHALL SAN FRANCISCO CHRONICLE
DATELINE: LENGTH: Long
Companies can prosper after layoffs only by better communicating their strategies to workers and involving them in corporate decision-making, boosting the morale of "survivors" and changing other aspects of organizational culture, these studies show.
"U.S. corporations are announcing major restructurings almost daily," said John Parkington, director of organization research at The Wyatt Co. in San Francisco, which has released a survey of restructuring efforts at 531 U.S. companies.
"Odds are, restructuring will provide a quick boost to the bottom line, but gains will steadily erode if deeper problems are not addressed."
A new study of corporate performance by Kenneth De Meuse, Paul Vanderheiden and Thomas Bergmann at the University of Wisconsin found that companies with large layoff announcements in 1989 suffered relatively worse financial performance two years later. Every 10 percent increase in the size of the announced layoff was associated with a 2.9 percent decline in profit margin and 3.7 percent decline in return on investment.
"Overall," their study concluded, the "results do not seem to support the contention that layoffs serve to improve [or even to stem the decline in] financial performance."
"Downsizing isn't the cure-all people are looking for," said De Meuse. "It's hard to downsize yourself into profitability. It's easy as a manager to look to labor as a source of cost saving. But there's a lot of psychological baggage that comes with layoffs. You get a loss of morale and performance, lawsuits and a propensity to increase union activity - these are the potential downsides of downsizing."
Two recent surveys support that contention. One, released last month by the American Management Association, found that fewer than half of 870 companies surveyed showed a rise in profitability, and only one-third showed any increase in productivity after staff cuts.
Results of the Wyatt survey were just as striking. Only 46 percent of firms met their goal of boosting profits. Fewer than one-third succeeded in their aim of gaining a competitive advantage. Just 27 percent said they increased customer satisfaction. And only 21 percent managed to reduce waste and inefficiency.
Most surprisingly, only 61 percent of companies even ended up cutting expenses.
"Many companies didn't study hard enough to figure where they should cut," Parkington said. "People were removed, but inefficient policies and processes remained. They ended up cutting too deeply in some cases, not enough in others, and found ways to put people back on the payroll or rehire them as consultants."
Factors that contributed to the success of restructuring included careful planning and advance communication to employees of the company's strategy, making senior management more visible during the process, involving employees through group meetings and project teams, and eliminating low-value work, the Wyatt report noted.
Many firms failed to implement such basic approaches, the report found. Nearly four in 10 companies did not even prepare a communications strategy to support their restructuring efforts, for instance.
The survey also found that only 13 percent of companies did a good job of addressing the needs of "survivors," who were expected to take on bigger workloads despite plummeting morale.
The problem of "layoff-survivor sickness" is highlighted in a new book, "Healing the Wounds" by David Noer of the Center for Creative Leadership in Greensboro, N.C., published this month.
Survivors typically suffer from fear, insecurity, resentment, anger, depression and other emotions that may undermine a company's effectiveness. "Layoff-survivor sickness is probably the primary reason that downsizing has seldom resulted in increased productivity," Noer argues.
Yet companies do little to help employees overcome those stresses and rediscover their creative powers. "In my work, I have found that many organizations have done a good job in outplacement, spending time and money to help those who leave," Noer writes. "Very little has been done, however, for those who stay behind, the survivors who have the task of revitalizing the organization."
Noer, who delivered his message at a recent management workshop in San Francisco, said "layoffs happen. You can't prevent that. But the extent to which organizations deal with the survivor work force is the extent to which they themselves will survive."
These warnings are likely to have continuing relevance to American business in the coming year. Despite the poor record of translating layoffs into higher profits, major American companies remain hooked on downsizing. The American Management Association predicts that about two in every five large companies will cut more jobs by next June.
Its survey concluded, "In major American corporations, downsizing has become an ongoing corporate activity that shows no sign of abating."
by CNB