"We are still not flexible enough. With future prospects uncertain we are forced to lay-off skilled staff and delay projects to reduce our fixed costs, despite the damage that will do to future growth objectives.
This dilemma is one we frequently hear from the boardroom. Profiting from the downturn requires cost reduction, change and new initiatives, yet it also requires the right resources to be available for the eventual upturn. Despite years of companies being encouraged to become more flexible, the evidence shows that in many sectors, they have not yet succeeded. Sudden, or not so sudden shocks, are forcing companies to think about resources - both internal and external - in a far more sophisticated way.
Many companies are reliant on layoffs to provide their flexibility. For example, Merrill Lynch, the international Investment Banking group, made deep job cuts in 1998/99 - damaging its franchise and having to rehire the fired staff only a few months later. Yet in October of this year Merrill Lynch invited most of its 65,900 staff to apply for voluntary redundancy, in order to help it cut about one-sixth of its workforce. Others examples are common, ICI, the UK speciality chemicals group, said it would cut 1,300 jobs after it announced lower pre-tax profits for the third-quarter ended September 30, down 11 per cent after years of steady upward growth.
|
"Is there any alternative to expensively adding staff as the business grows then laying them off when the growth slows or reverses?"
|
|
|
However, layoffs are an expensive and brittle way to inject flexibility into a business. In most markets the cash costs of redundancy and staff assistance to displaced workers are high. Sometimes, as Marks and Spencer recently discovered in France, the costs can be punitive. Critical knowledge and skills are permanently lost from the organisation. If redundancies are voluntary the best staff are likely to leave. Additionally, the hidden costs of worker guilt and lost loyalty can have a huge impact.
Is there any alternative to expensively adding staff as the business grows then laying them off when the growth slows or reverses? We think so. Through evaluating systematically all the resources available to companies and matching the projects to the right resources, companies can both reduce the costs of projects and make their businesses more flexible.
For example, companies often find it cheaper (and easier) to shed temporary workers first, especially in continental Europe, with its draconian employment laws. When Alcatel, a French engineering giant, recently shed 1,045 jobs in France, 873 of them were temporary. The first response of British Airways, the UK based international airline, to the September 11th tragedy was not to renew the contracts of thousands of contactors and to cancel all ongoing consulting and outside marketing expenditure. However, to be able to shed temporary workers in the downturn, companies first have to use temporary workers, and other flexible resources such as consultancies in an upturn. This requires the trade-offs in cost, skills and effectiveness to be properly assessed and optimised.
These same considerations are leading many companies to consider full outsourcing of an increasing number of operational functions. Not only can that increase flexibility - by passing on the risk of downsizing to an external agent - but also reduce the time delay and investment cost of gearing up volumes by taking advantage of a shared resource. An outsourcer may also be able to achieve scale economies that are beyond the reach of smaller in-house functions, and offer more leading edge technologies. Offsetting these advantages is the desire to keep critical expertise and customer interfaces in-house, where management has more direct control.
This dilemma is one we frequently hear from the boardroom. Profiting from the downturn requires cost reduction, change and new initiatives, yet it also requires the right resources to be available for the eventual upturn. Despite years of companies being encouraged to become more flexible, the evidence shows that in many sectors, they have not yet succeeded. Sudden, or not so sudden shocks, are forcing companies to think about resources - both internal and external - in a far more sophisticated way.
Many companies are reliant on layoffs to provide their flexibility. For example, Merrill Lynch, the international Investment Banking group, made deep job cuts in 1998/99 - damaging its franchise and having to rehire the fired staff only a few months later. Yet in October of this year Merrill Lynch invited most of its 65,900 staff to apply for voluntary redundancy, in order to help it cut about one-sixth of its workforce. Others examples are common, ICI, the UK speciality chemicals group, said it would cut 1,300 jobs after it announced lower pre-tax profits for the third-quarter ended September 30, down 11 per cent after years of steady upward growth.
|
"Sudden shocks are forcing companies to think about resources - both internal and external - in a far more sophisticated way."
|
|
|
Companies are developing and implementing the tools, infrastructure and organisational capabilities to establish a strategic resourcing capability - capable of optimising the deployment of both internal and external resources. These groups are able to combine detailed knowledge of their own capabilities with sophisticated research and understanding of the choices available in the market, accompanied by an overall assessment of the company's strategic priorities. The groups are led by strategic resourcing directors who combine experience of strategy, a deep understanding of the organisation with knowledge of all available resources. They use of a new breed of software tools that enable them to seamlessly match and integrate resources from a number of different sources. These forward looking companies are recognising that now - after a period of downsizing - is the best time to put in place the resource infrastructure to ensure that they can exploit the opportunities in both the current environment and the eventual upturn.
Click here for full article...
