Skip to: Content
Skip to: Site Navigation
Skip to: Search


Efficiency Gains Rare After Business Layoffs

By David R. Francis / May 25, 1990



A MAJORITY of the largest thousand corporations in the United States have ``downsized'' work forces in the last two years. Many of the remaining Fortune 1000 and thousands of other smaller companies will take similar action in the years ahead in the hope of containing costs and becoming more competitive. But according to Kim Cameron, a professor of organizational behavior at the University of Michigan School of Business Administration, those efforts are likely to fail if the traditional methods of reducing staff are employed. The companies will be less productive - not more efficient.

Skip to next paragraph

The massive layoffs, early retirements, and other ``grenade'' approaches to cutting wage costs could also damage the morale and loyalty of the American work force.

``We will pay the price,'' Mr. Cameron said in an interview.

Cameron's thesis hangs on a three-year study he recently completed of 30 downsized operations within the automobile industry - assembly plants, suppliers, parts companies, etc. He talked with chief executive officers or managers regularly, and surveyed 3,000 management employees to find out what worked and what didn't. ``Unless management is very good, the employees performed worse after the cutbacks,'' Cameron found. ``In only five or six of the organizations I studied did I see a marked increase in productivity. In all the rest, performance went down.''

The basic reason is that the managers did not pay sufficient attention to the human element. In a modern company, people are key to its success. They are individuals with talents to be developed, not replaceable pegs to be shoved around from slot to slot - or out.

When a firm engages in major cutbacks, it obviously can hurt those removed. Horror stories are abundant. Cameron tells of one manager forced into early retirement who saw two of six friends in the same situation commit suicide.) It also can devastate those remaining to pick up the corporate pieces. They may be faced with more work, unfamiliar tasks, pay freezes, and often a mean spirit among the survivors.

Cameron found in the badly managed downsizings that among the remaining employees there was increased conflict, decreased real communications (sometimes because people are too nervous to pass on bad news to their bosses) and more rumors, less participation, more power plays, more politics, more autocratic leadership, more turnover, and less innovation because that involves extra risk and costs.

Companies initiating early retirements sometimes lose valuable institutional memories. In one of the companies Cameron studied, a senior buyer of raw material, including steel, departed. He had in his head the precise steel alloys needed. His successor cost the company $10 million by ordering the wrong steel.

How can such damage be avoided?

Cameron counsels that a company conduct a systematic analysis of the tasks, resources, and talents a firm has before starting to cut employees. It should involve people in deciding what jobs can be eliminated and which the company cannot afford to lose.

At one General Motors operation, this was done by offering incentives to employees who found their own jobs could be eliminated. They were offered full salary for a year, training or education for another job, help of an outplacement firm, or an opportunity to demonstrate that a new business activity could be profitable for the company. The approach worked. After the cutbacks, productivity, employee satisfaction, and quality went up, staff turnover and costs per unit down.

Cameron also advises strong, visible, visionary leadership that describes a process and outcome that employees can support; bottom-up participation and intense communications to employees; teamwork, especially among salaried workers, so that each employee can do each others job and be rewarded financially for it; and small, slow steps rather than one huge shock.

``There is no such thing as a quick fix when downsizing,'' concludes Cameron.