Preface

This book is about changing managers’ perceptions of employees from costs to be cut to assets to be developed. Almost two million American jobs were lost in 2001. In many cases, these job losses represented conscious decisions by managers to reduce the size of their workforces through layoffs or selling off unprofitable assets. In others, it almost surely was the result of “slash-and-burn” tactics that simply copied what competitors were doing.

Yet not all companies follow these approaches. This book highlights creative and profitable alternatives that some companies take in their approaches to restructuring and cutting costs. Those approaches are termed “responsible restructuring.” The book shows that, especially in knowledge-based organizations, cutting people can often be disastrous, except as a last resort.

Consider this fact. Over the long term, any effort to develop an organization will encounter economic swings both up and down, as well as changes in markets, customers, products, services, and technology. I have found that “preventive planning” is a key difference between organizations that can deal with such changes in a systematic, orderly way, versus those that resort to knee-jerk reactions in order to respond swiftly (often through mass layoffs). Companies like Reflexite and Southwest Airlines (described in chapters 5 and 6, respectively) are good examples of preventive planners. Each has built a plan for restructuring into the overall economic plan for its business.

This book builds on the seminal publication I did in 1995 for the United States Department of Labor, entitled Guide to Responsible Restructuring. As I investigated the approaches that various companies, large and small, public and private, adopted in their efforts to restructure, what became obvious to me was that companies differed in terms of how they viewed their employees. Indeed, they almost seemed to separate themselves logically into two groups. One group, by far the larger of the two, saw employees as costs to be cut. The other, much smaller group saw employees as assets to be developed. Therein lay a major difference in the approaches they took to restructure their organizations.

Employees as costs to be cut. These are the downsizers. They constantly ask themselves, “What is the minimum number of employees we need to run this company? What is the irreducible core number of employees the business requires?”

Employees as assets to be developed. These are the responsible restructurers. They constantly ask themselves, “How can we change the way we do business, so that we can use the people we currently have more effectively?”

The downsizers see employees as commodities—like microchips or lightbulbs, interchangeable, substitutable, and disposable, if necessary. In contrast, responsible restructurers see employees as sources of innovation and renewal. They see in employees the potential to grow their businesses. Chapter 1 highlights these differences, puts the issue of restructuring into broad perspective, and examines the consequences of treating employees poorly versus the payoffs from treating them well.

Chapter 2 presents the results of an analysis of the financial consequences of alternative restructuring strategies used by 500 firms (Standard & Poor’s 500, or the S&P 500) from 1982 to 2000. The S&P 500 is one of the most widely used benchmarks of the performance of U.S. equities. The study addressed two questions: “Are firms that downsize more profitable than those that don’t, or more profitable than other firms in their own industries, in the year of the downsizing, as well as up to two years later?” and “Over the same time period, are stockholders better off investing in a portfolio of companies that downsize, as opposed to investing in companies that don’t?” The answer to both questions is no. This is why it is reasonable to question the efficacy of downsizing as the preferred approach to restructuring, and to examine alternative approaches.

Chapter 3 explodes 13 myths about employment downsizing and presents the actual facts, based on systematic research. The myths address issues such as the profitability and productivity effects of employment downsizing; its effects on quality as well as on the morale, workload, and commitment of survivors; the security of jobs at firms that are doing well; and the health consequences of layoffs.

Chapter 4 presents the case for restructuring and the introduction of “high-performance work practices.” The latter include practices such as skills training and continuous learning, information sharing, employee participation in the design and implementation of work processes, flattened organizational structures, labor-management partnerships, compensation linked to employee skills and organizational performance, and customer satisfaction—as defined by customers. The chapter presents compelling evidence to support the conclusion that high-performance work practices have important, meaningful effects on a firm’s financial and nonfinancial performance indicators and that the most effective employment relationships are those in which open-ended inducements provided by employers are balanced by open-ended contributions from employees.

Chapter 5 presents 10 alternative approaches to responsible restructuring, using as illustrations Charles Schwab & Co., Compaq Computer, Cisco, Accenture, Motorola, Reflexite, Intel, Minnesota Mining and Manufacturing Company (3M), ChevronTexaco, Acxiom, Sage Software, Louisiana-Pacific Corporation, Philips Electronics Singapore, and Procter & Gamble. The chapter describes the specific practices these firms use to demonstrate their commitment to their people as assets to be developed rather than as costs to be cut. Even when cuts are necessary, firms such as these use practices that promote goodwill and loyalty, both among those who leave as well as among those who stay.

Chapter 6 highlights a small group of firms, public as well as private, large as well as small, that have implemented no-layoff policies, and it describes specific employment and business practices at three no-layoff companies: Lincoln Electric, SAS Institute, and Southwest Airlines. The chapter emphasizes that there is virtue in the stability of employment and that there is a no-layoff payoff.

Chapter 7 is a capstone chapter that illustrates what to do—and what not to do—when restructuring responsibly. It points out common mistakes that companies make when restructuring, along with advice on how to avoid those mistakes. It is a step-by-step guide to responsible restructuring that builds on all of the research and practical experiences presented elsewhere in the book.

Wayne F. Cascio

Golden, Colorado

June, 2002