Lessons from Successful Streamliners


Robert M. Tomasko


[This is a revision of an article titled "The Right Way to Shrink a Company" that appeared in The New York Times, January 10, 1988]


This year's holiday season is a time of mixed blessings for many middle managers and staff professionals. For thousands its festive spirit is being tempered with the news that they are losing their jobs. The holidays coincide with the end of many corporate fiscal years, the time when the pressure is often greatest to boost results by cutting costs.

Chrysler has announced plans to eliminate 3600 white collar jobs by the end of this year. General Foods is reconsidering its need for 2000 headquarters jobs in the aftermath of its acquisition by Phillip Morris. Bell Atlantic has recently offered early retirement to a quarter of its 23,000 managers. Other reductions have been announced at Chase Manhattan, Chemical Bank and Citibank. Entire departments of well paid analysts and traders have disappeared in several Wall Street firms and even the Pentagon is planning to eliminate 10% of its civilian jobs. These and similar cutbacks may bring the number of U.S. professional and managerial positions eliminated since 1979 to over a million and a half.

The 1980s may well be described by business historians as the downsizing decade. Industry restructuring, deregulation, and intensified international competition have combined with the normal ups and downs of the business cycle to make headquarters staff an endangered species and management layers public enemy number one.

It is no secret that some companies have handled these changes better than others. While doing background research for my book on corporate streamlining it soon became apparent that some firms emerged from this process stronger than they went into it. But others have only eliminated jobs while keeping bureaucracy, breeding habits that are now threatening to negate their hard won gains.

Four principles seem to characterize the approach taken to downsizing by companies that have best used it best to their strategic advantage - firms such as Apple, Dana, General Electric, Siemens and Xerox

Build, don't destroy is the first of these. Effective streamliners have avoided cost-cutting myopia. They have realized that while low cost operations are terribly important, the real issue is competitiveness. Building and holding a competitive advantage requires a strong organization, not one suffering from chronic whip lash from successive waves of work force reduction.

Instead of destructive demassing - the outplacement industry's terms for deep, across-the-board cuts, minimally planned and hurriedly carried out - these companies have focused efforts on their organization's shape as well as its size. Gillette, even while fighting off an unwanted takeover bid from Revlon, took advantage of the external pressure to replan its organization structure to focus more on product line strategy instead of geography. Honeywell Bull's pre-Thanksgiving announcement of a 10% shrinkage of its U.S. work force was coupled with a plan to add 200-300 new, competitively-important positions.

Use a scapel, not a meat cleaver is the second. These effective downsizers are surgeons, not butchers. They are closely examining how work is done, not just how many people are doing it. They are uncovering critically important activities scattered across too many organizational units. They are questioning from a zero base the need for each level of management between first line supervisor and chief executive. And they are trying to keep their companies from having more than five or six layers by making sure that all their managers have the greatest possible number of subordinates.

Companies that want to get the greatest competitive gain from downsizing are also treating their staff units more like businesses, less like business appendages. They keep headquarters groups from becoming bloated by establishing sunset laws for staff work: an old activity must be abandoned or decentralized before a new one is taken on. They are keeping staff closely attuned to the requirements of their internal customers. They are constantly looking for alternative ways to obtain outside the company the services traditionally provided internally by personnel departments, accounting units, management information systems groups, strategy planners, etc.

Third, skillful streamliners work hard to keep the solution from becoming worse than the problem. They give great care and attention to managing the transition from fat and bloated to lean and mean. They develop elaborate communication programs to short circuit the rumor mill at each stage of the downsizing process. They provide counseling to the employees they are letting go as well as those remaining. Time is allowed for work team to be rebuilt; managers' qualifications are reassessed to make sure they are able to cope with the increased responsibilities that usually come with a lean organization.

Ironically, some companies that give a lot of attention to advance planning for downsizing are able to implement it without letting go any good performers. Combinations of hiring freezes, temporary salary reductions, well managed attrition, job buyouts, converting jobs from full to part-time, and retraining and redeploying have helped firms around the world cope creatively with the need to reduce their size. IBM and Hewlett-Packard have made good use of many of these, along with Siemens in West Germany and many Japanese corporations.

Stay lean is the last of these injunctions. Successful downsizing is not even half the battle; it is often a lot harder to stay streamlined than it was to get there. One technology based company emerged from deregulation proud enough of its one hundred person headquarters to highlight it in national advertisements. That was three years ago. Now its head office has grown to five hundred.

Keeping the bloat and bureaucratic habits from returning requires addressing some of their root causes. One is the tendency to do everything in house. This practice made a lot of sense in the post World War II decades when the U.S. economy was experiencing rapid growth. Now, in a more mature economy, it is only a formula for generating overhead and high cost operations.

Instead, effective downsizers lower the wall between themselves and the outside world. They do not try to develop every new product internally. They follow Control Data's lead in establishing innovative relationships with outside developers. They do not make everything they sell in their own plants. Occasionally they take Chrysler approach to meeting peak demand by having products built in competitor's factories. They exit from, what are for some, low value added activities such as distribution and logistics. Unilever even went so far as to spin off its distribution organization into a stand alone contract logistics company owned and operated by its former managers.

Another largely unaddressed creator of management bloat is the compensation and career progression systems used by many corporations. Pay levels tend to correspond more to the number of people supervised than to the individual's relative contribution. This practice and the upward escalator assumption built into most career paths are strong guarantees that excess staffing is likely to return when the pressure lets up. Both of these human resource practices need to be reexamined and purged of their unintended consequences.

Turning lessons like these into reality requires a top management team with a strong sense of purpose - one that is willing to move beyond the obligatory platitudes about human resources. One willing to treat employees as assets that need to be managed with the same attention required by economic and technological assets. And one willing to plan now so they can act on their timetable, not the one dictated by a junk bond fueled raider or the next business downturn.

Moving now to reshape their organizations into tools that allows employee to maximize their value added is probably the best way to insure future holiday seasons provide a more consistently positive message.


© Robert M. Tomasko 2002



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