Excerpt # 1 The Downward Spiral Let's call our fictional company the XYZ Corporation. Business is bad. Sales are low and inventory is high. What does the company decide is the right course of action? Downsizing is their answer of course. This is done to reduce expenses. The former XYZ employees are unable to find another job. Because of economic conditions, companies are currently hiring only absolutely essential personal. The former employees reduce their expenditures to fit a highly reduced budget. This reduction in consumption negatively affects other companies' financial status. Other companies look for a strategy to handle the downturn in their profits. Most of them choose to downsize. The former employees of these companies face the same problem of the former employees of the XYZ Corporation: there are no jobs available. The newly unemployed are eventually forced to curb their spending. This again impacts other companies and they react in a similar manner. Eventually the XYZ Corporation is impacted enough to require further actions to attempt to protect stock value. Like most, they choose to exemplify insanity by downsizing once more and feeding the nightmare. Why is this an example of insanity? Isn't it insane to expect a different outcome when you do the same thing over and over again?
Many would say "But I have no other choice! What can I do?" Options are many but consider this one from Lincoln Electric Holdings, Inc. (NASDAQ: LECO).
A Different Choice... First let's understand the company itself. The Lincoln Electric Company is a full-line manufacturer of welding and cutting products. Welding products include arc-welding power sources, wire-feeding systems, robotic-welding packages, fume-extraction equipment, consumable electrodes and fluxes. Lincoln Electric's welding products also include regulators and torches used in oxy-fuel welding and cutting. During 1998, The Lincoln Electric Company reorganized into a holding company structure and Lincoln Electric Holdings, Inc. became the parent of Lincoln Electric subsidiaries worldwide, including The Lincoln Electric Company.
Now let's examine their strategy. Lincoln does not reduce its staff in turbulent times. Instead it trains and redeploys them in an effort to increase sales. It thereby keeps inventory down to levels needed by reducing production workers but increases sales potential by increasing the size of its Sales & Marketing teams. When the economy turns around, Lincoln Electric is ready for it because it redeploys its employees back to their old positions as needed. In this manner it can even gain further market share over its less long-term thinking rivals.
Reallocating staff to other functions is just one of many possible strategies available to companies. Some companies take conventional options such as offering sabbaticals, long vacations at decreased salary, and decreased workweeks. Others choose unconventional strategies. Remember, you always have options. Which one will you choose? Please don't feed the nightmares...
Excerpt # 2 Rightsizing Versus Downsizing As Heather is giving Sam directions to the cafeteria in the Goldenspoon Headquarters, Frank takes Charles aside and says, "Charles, can you and Bill stay behind with Cal and I for a few more moments? We'd like to discuss a confidential matter with you both."
Charles motions to Bill and says, "Sure thing"
After Heather and Sam have left, Frank continues, "We are very interested in assisting you in reaching success in your China Initiative. With that in mind, we'd like to discuss briefly the strategy that the Goldenspoon Company will employ to guarantee that the resources are there for our mutual success."
Charles nods and states, " That's reasonable. What are you thinking about?"
Frank states, "Like many companies, the Goldenspoon Company has been affected by the impact of this declining economy. Like most of these other companies, you have chosen to utilize downsizing as a strategy when your economic picture seemed dismal. As you may have noted, this has not really helped the situation in the long term. We would like to help you avoid further downsizing or if it can't be avoided, to do it right."
Bill questions, "Can you explain more fully on that?"
Cal responds, "Downsizing is only one way a company can rightsize. If you are going to rightsize by downsizing, it needs to be done differently. Most companies start their downsizing from the bottom and move up. It rarely hits where it should within the upper ranks of the company. Instead management becomes more top heavy. I'm sure that many consultants have told you of a need to reduce the number of layers within your organization. They tell you to streamline the organization but don't help you with the how. M & B Consulting would like to help in that regard"
Cal continues, "Properly done, downsizing starts at the top and works its way down through the organization. It starts with the two of you looking at your direct staff and measuring if the workload is spread too thin and if anybody isn't pulling their weight. After that is done, you and your remaining staff must do the same to their direct staff members. This is carried on down until you reach the bottom layer. What remains should be a more effective organization."
Frank takes over, "This is only part of the picture though. Please let me share with you some figures that we put together based on our understanding of the Goldenspoon Company. These figures relate to your previous full strength of 100,000 employees last year, as well as your current remaining 75,000 employees after the series of layoffs that occurred. You'll note that in this first chart, that instead of a expected expense reduction of approximately $1.9 billion, you can expect a loss of approximately $4.3 billion."
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