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Columnist: H. James Harrington

Photo: Scott Paton, publisher


Rightsizing, Not Downsizing

Layoffs are costlier than you think.




Employment security is one of the most critical and complex issues facing top management. This is particularly true for organizations that have implemented performance improvement programs such as TQM or Six Sigma.

Management must answer the following questions:

Are employees considered an investment or a cost?

How much improved performance and flexibility would be gained if the organization provided employment security?

Is it better to retrain employees or hire new ones?

Should the organization look at other ways to handle surplus employees besides layoffs?


Employees must ask themselves:

What effect will performance improvement initiatives have on my employment security?

Will they jeopardize or improve my standard of living?

Am I willing to change jobs or move to another location?

Will I be more valuable as a result of what I learn during the process?


Organizations can 't expect employees to give freely of their ideas to increase productivity and minimize waste if these ideas will eliminate their job or a friend's job. A continuous improvement process that involves layoffs ultimately becomes a continuous sabotage process.

Corporate America has been on a downsizing kick since the late 1980s. The answer to business pressure has been to slow down and lay off, with the hope of raising stock prices, but that doesn't work. Large layoffs produce sudden, substantial stock gains because the effects of a reduced workforce don't immediately reach the customer, and the savings from reduced wages make the organization appear more profitable than it really is. But in the long run, downsizing has a negative effect. CEO Frank Poppoff of Dow Chemical put it this way: "Layoffs are horribly expensive and destructive of shareholder value."

This is because most organizations downsize rather than "rightsize." Organizations have been cutting x percent per area--not eliminating any work, just redistributing it among the people who are left. In effect, management is telling employees that they're not doing a fair day's work for a fair day's pay.

There are many other ways to handle the problem of surplus employees. Before an organization lays off anyone, it should consider some of these options:

Increase customer demands

Prune "dead wood," i.e., unproductive employees

Reduce overtime

Provide skills training

Allow for attrition

Train the trainers

Increase marketing and sales efforts

Recommend voluntary leaves

Rotate jobs

Establish retirement incentives

Set up a shorter work week

Send employees to school

Make use of civic programs

Relocate employees

Implement job sharing

Hire contract workers


Yes, you might still have to lay people off, but both you and your employees will feel better about the process if you've first tried these 16 alternatives.

The cost of layoffs and subsequent hiring is growing all the time. Dow Chemical estimates that it costs between $30,000 and $100,000 to lay off technical and managerial personnel. Layoffs not only cost the organization money and some of its best people, but productive new employees will think twice before signing on.

Employees understand that their organizations must cut back when demand falls off. They're less understanding when jobs are eliminated due to performance improvement initiatives such as TQM, Six Sigma and total improvement management. To alleviate employees' fears, top management should implement a no-layoff policy stating that no employee will be laid off as a result of a performance improvement initiative. Instead, people whose jobs are eliminated will be retrained for an equivalent or more responsible job. Note that the policy doesn't guarantee that employees won't be laid off as a result of a downturn in the business.

I know of one organization that eliminated 200 jobs as a result of a performance improvement process. As it started the process, it put a freeze on new hires and used temporary employees to cover the workload peaks. This step was reviewed with the labor union leaders, who concurred with the use of temporary employees to protect regular employees' jobs.

The organization also held a contest to select 50 employees who were sent to a local university to work toward engineering degrees. While at school, they received full pay, and the organization covered tuition. The results were phenomenal. People began to look for ways to eliminate their jobs so that they could go to school.

About the author
H. James Harrington is CEO of the Harrington Institute Inc. and chairman of the board of Harrington Group. He has more than 55 years of experience as a quality professional and is the author of 22 books. Visit his Web site at www.harrington-institute.com.