Special Report: Train After Layoffs!

A Summary of the Profit-enhancing and Personnel-stabilizing Effects
of Increasing Training Budgets After Downsizings and Other Layoffs

This Special Report is based on information developed pursuant to our analysis
of the American Management Association reports cited at the end of this report,
on information from The Wall Street Journal,
and on our own observations and feedback from clients.

December 9, 1996 -:- Copyright © by ASC/ Articulate Management, ntc.

Downsizing and Layoffs: Not Necessarily the Same Thing
The Destructive Aspects of Layoffs
The Evidence in Support of Increasing Training Budgets After Layoffs
Why Training After Layoffs Increases Morale and Profits
The Value Of Training Overall, and of Management Training in Particular

Downsizing and Layoffs: Not Necessarily the Same Thing

According to the American Management Association, "job elimination is no longer synonymous with downsizing". This is primarily because of concurrent job creation. Job elimination has occurred in an increasing share of firms over the past three years, but the share of firms that have actually downsized has decreased. Jobs that are eliminated are compensated by new jobs created.

"Fifty percent of major U.S. companies eliminated jobs in the twelve months ending June 1995." Yet while the eliminations averaged 7.7% of the workforce, the net workforce change in job-eliminating companies was only a 1.1% jobs reduction. Over 47% of reporting firms had an increase in total employees in the same period. Finally, although 66% of surveyed companies underwent at least one workforce reduction in the first half of the decade, today nearly 57% have larger workforces than in 1990.

We would add that although there has been a definite downsizing in the microchip industry recently, that downsizing followed unprecedented growth. In most cases the net result has been more jobs. We speculate that this was not a major disturbance within the industry (despite the hand wringing in the local press). Rather, this seems to be a normal manifestation of what we call the "Growth-Spurt Market-Leveling (GSML) cycle". We have observed this cycle at play in several if not most industries. As a side note, over the past several years we have been fine-tuning a set of proactive coping mechanisms for use within the planning process to minimize the effects of GSML.

It is possible that the more widespread downsizing trend of the past several years is nothing more than a long-wave manifestation of the GSML cycle, a correction of the growth explosion of the previous decade. Of course, this observation does little to allay the concerns of people caught in the corrective end of the cycle, be they layoffs or managers burdened with deciding who must go and how the remaining work is to be done.

The Destructive Aspects of Layoffs

(Note that this section deals with, and thus necessarily describes, the downside. It is not intended as an indictment of anyone, nor should it be taken as anti-corporation. It is simply a statement of reality. In fact, it sets the stage for a real solution, something unattainable without a clear statement of the problem.)

The first point that must be made regarding workforce reductions is that such reductions do not necessarily benefit the bottom line. According to the AMA, "Fewer than half (47%) of the companies reporting workforce reductions since 1990 report that operating profits increased in the year following the reduction, and a slightly lesser number (46%) report an increase in the longer term.... Even fewer (33%) report an immediate increase in worker productivity; in the long term, that figure increases to 42%."

This would seem to indicate two things. First, corporate productivity suffers after workforce reductions because the production that would normally have been done by the displaced workers is not readily picked up by those who remain. Second, workforce reductions taken primarily for the sake of profitability are of dubious value. Given these, and the wholly negative consequences that follow, it becomes clear that profitability as a factor in workforce reductions must be considered in a broader and more critical light.

A recent front page feature, "The Next Big Thing" (The Wall Street Journal, November 26, 1996) states, "Three years after Dr. [Michael] Hammer and consultant James Champy launched this decade's hottest management fad with their best-selling book Reengineering the Corporation: A Manifesto for Business Revolution, Dr. Hammer points out a flaw: He and other leaders of the $4.7 billion re-engineering industry forgot about people." Dr. Hammer says, "I was reflecting my engineering background and was insufficiently appreciative of the human dimension. I've learned that's critical." He says, "The real point of this is longer-term growth on the revenue side." Dr. Hammer concedes that re-engineering may be about getting more out of people, but, he insists, "It's not about getting rid of people." Despite AMA findings that "two-thirds of reported job eliminations are connected to organizational restructuring, and nearly half to reengineering of business processes,"

Dr. Hammer bristles when asked to respond to critics who say his ideas have led to layoffs and demoralization among workers. Down-sizing isn't re-engineering, he says. "I don't accept blame for the misappropriation of the term."

Layoffs have two primary destructive aspects regarding employees (and public perception): demoralization and destabilization. Both of these can happen to the same people, but those who are laid off suffer the greater demoralization while the "survivors" are more destabilized. And although Dr. Hammer has recognized that he and his contemporaries forgot about the human side, in the same WSJ article his further remarks reveal, perhaps inadvertently, that the re-engineering movement as practiced by engineers (and "bean-counters") has a long way to go toward dealing with people:

Talking about what to do with middle managers who undermine re-engineering efforts, he says: "I sort of believe in public hangings for that." Then, assuming the role of corporate sheriff, he points his finger like a pistol and plays out a scene: "`What do you think about what we're doing? You don't like it? BANG!'"

No inquiry as to why, no concern illustrated for the sensibilities of real people. We submit that this attitude is a major negative factor in the public's perception of how large corporations handle employees.

This last quote illustrates clearly the true defect in today's re-engineering/downsizing profit-maximization fad: insensitivity to human factors. It is this insensitivity that led to the industry's missing the people side of re-engineering. Particularly in across-the-board reductions, people are dismissed by the numbers, and qualified people lose their jobs just as easily as anyone else. (In fact, by the second or third round, nearly all who are cut are highly qualified survivors of earlier cuts.) Insensitivity, both real and perceived, is the greatest reinforcement of demoralization and destabilization. Demoralization is reinforced because those who are laid off sense that they are secondary to the dollar, or even worthless to the corporation altogether. The destabilization of those who remain is reinforced by their clear recognition that they could be next, no matter how well they perform in the interim; their qualifications are no guarantee.

For the corporation, a much greater problem grows out of employee demoralization and destabilization: the erosion of loyalty. As it becomes more apparent to employees that their corporate bosses don't care about them, they become less committed to their employers, and often, their work itself. They begin to follow the companies' lead and worry only about themselves, neglecting or even sabotaging one another while mirroring the corporate practice of taking whatever they can get while giving as little as possible. A positive motivation toward a job well done is no longer the strongest deterrent to sloppy or negligent performance, although many do manage to retain that perspective. By and large the new motivation is merely to perform well enough to keep the job for as long as possible, all other aspirations having been tainted by the destabilization.

Finally, there is the sociological aspect. As people work more and longer hours, not to get ahead as in times past, but rather only to carry the extra workload, they become increasingly desperate about their futures, which do in fact crumble before their very eyes; their energies for enjoying life are sapped by the longer daily struggle; their children, if they are brave enough to have any, must be entrusted to strangers almost full time; and, society itself suffers as a dissociated and self-centered generation grows up without parental values and guidance. Truth be known, we are already fifteen years into that slide, it having begun in earnest with the get-what-you-can takeover rampage in the early 80's.

The Evidence in Support of Increasing Training Budgets After Layoffs

The American Management Association reports that "There is a remarkably strong correlation between increased training budgets and increased profits and productivity following workforce reductions. Long term, firms that increased their training budgets after workforce reductions were twice as likely to show increased profits and productivity than firms that cut their training expenses."

This would indicate that training budgets should be increased concurrent with workforce reductions. Discussing re-engineering and reorganization, the AMA states, "Workers who receive training in these new structures and processes are far more likely to improve their productivity, which in turn leads to increased profits."

Of those firms reporting increased training budgets, 68% reported immediate and 79% reported long-term improvements in profits. Compare this with the 40% immediate and 41% long-term improvements in profits of firms who reduced training budgets. As for productivity, of those firms reporting increased training budgets, 44% reported immediate and 70% reported long-term improvements, contrasted with the 31% immediate and only 37% long-term productivity improvements in firms who reduced training budgets.

Although the AMA reports focus on worker training, our own experience with our clients indicates that these numbers translate directly to management training. In times of downsizing and reorganizations where one of the objectives is the flattening of the organization (elimination of layers of middle management), more people who are relatively untrained in management find themselves confronting greater management burdens - more people, greater responsibility, heavier project workload. In this environment there is little room remaining for a casual approach to management skills. People are not born with management ability. If they were, it could not have been said that 97% of all families are dysfunctional. Therefore, to assume that people can bring their life experience of dealing with other people to work, as their primary reference base for management skills, is unsound reasoning.

At Articulate Management, we remain more convinced than ever that management training, particularly in personnel interactions, is as essential as technical training.

Why Training After Layoffs Increases Morale and Profits

Where the larger part of the damage from layoffs stems from perceived insensitivity and shaken self-worth, much good can be had from training in areas that counteract or even prevent those perceptions. Employees who feel that their employers value them enough to invest in them also feel a duty to return that value by way of quality performance. And, of course, that quality is enhanced even more by the training. In fact, even employees who remain concerned about future layoffs suffer less destabilization when their value is acknowledged through increased training.

Because employees recognize that training is expensive, they readily see that the corporation that invests in their skills is not attempting to improve profits merely by reducing payroll. Further, they feel more empowered by the training, and in fact they are more empowered by it, to take a greater hand in their destinies within, and if necessary outside of, the corporation that makes the investment in them. They appreciate the investment in themselves, and tend to become more cost-conscious in return. As a result their demoralization is largely reversed and they work harder (smarter, with effective training). And if in fact they are cut later, they usually contribute less to the negative word-of-mouth that tends to follow layoffs.

Since profits are a function of effectiveness and productivity, profits are increased by anything that improves effectiveness and productivity. The improved morale and enhanced skills that come from quality training go far in this direction.

The Value Of Training Overall,
and of Management Training in Particular

There is a direct correlation between competence and lowered-cost productivity. Training increases effectiveness and productivity, both of which contribute to profits. Beyond immediate profits, the improved self-esteem and abilities of workers contribute to greater commitment by them to the goals of the companies for whom they work, leading as well to increased innovation and its long-term benefits.

Managers, often the least-trained of all employees for their positions, having been promoted in most cases from the superior ranks of the technically skilled, benefit even more from training than do workers. Training managers in the technically-neglected fields of interpersonal relations takes them over the barriers imposed by being promoted, as it were, from an area of competence into an area of ignorance. Effectively trained managers, meaning those who have learned constructive methods and approaches to facilitating the corporate and professional accomplishments of their subordinates, are assets to both their subordinates and their company. Thus a double-benefit argument can be made in support of management training.

Training, an idea whose benefits have too often been questioned or unacknowledged, is always a good idea, given the moving target of being fully informed. Training after layoffs is a particularly good idea, one whose benefits have now been proven.


1995 AMA Survey on Downsizing and Assistance to Displaced Workers
1995 AMA Survey: Corporate Downsizing, Job Elimination, and Job Creation; Summary of Key Findings
1996 AMA Survey: Basic Skills Testing & Training; Summary of Key Findings
The Wall Street Journal, November 26, 1996

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