So I’m reading about Scandinavian Airlines (SAS) being in trouble and laying off a lot of employees to save money.
I can certainly understand how you have to do it if you have less customers so that a certain number of employees just aren’t needed anymore. But in many cases it seems like the company is producing the same amount of stuff. How can they just downsize then? Don’t those people have important jobs to do? Won’t that just mean the company will do even worse?
And if it’s possible to just do the job more effectively, with fewer employees, why wasn’t the downsizing done earlier? Doesn’t the company want to minimize costs even when it is doing well?
I don’t have the slightest idea about the specifics on SAS, but when business is not good, something, anything, has to be done, even if it doesn’t make sense or is detrimental in the long run.
Doing the same thing you were always doing will make investors and stockholders unhappy, even when any other course of action is going to fail or simply is irrelevant to the problem.
One reason not to downside when you are doing well is the impact on employees. With less people it’s likely they have to work harder or longer hours. And that may cause them to quit for a better job.
Companies at some large size can’t easily adjust the number of employees to match immediate levels of production. So they tend to be either in a growth stage, where they are hiring excess employees in anticipation of growth, or downsizing to match the actual market. Sometimes companies that seem stable for a period of time also tend to maintain employment high employment levels in the face of shrinking business until the bottom line is heavily affected, and then have to downsize rapidly. It may not be the case for SAS, but for more diversified companies there are often segments of the business which are non-profitable and supported by the rest of the business. When profits fall significantly these segments of a business are rapidly downsized to cut costs without no impact on profitable production.
It all boils down to: “See that number? It could be* bigger*!”
Yes, numbers are like that.
Often, the downsizing corporation is till profitable, just not profitable enough.
My daughter worked for a couple of companies in which she claimed, doubtless with some exaggeration that half the employees did essentially nothing, but had been around forever and were simply marking time till retirement. Also that there was at least one whose output was negative since they interfered with the people actually doing work.
On the other hand, companies have been ruined by downsizers too. Someone will be hired to increase profits, fire a lot of people thus improving the bottom line for a few quarters, cash his options and then move on the ruin another company while the first goes down the drain, since the fired workers were needed to keep up production.
There is also an effect on employee morale. I have noticed that in all retail outlets I frequents, some have apparently happy workers who treat the customers well and others seem to have a culture of pissing on the customers. I avoid the latter, but I am convinced that the way the clerks treat the customers reflects the way they are treated by management.
I worked for a company which was consolidating and downsizing their workforce, because they had a whole bunch of people all over the country being paid a bunch of money to get a bunch of stuff done. Their goal was to get as much work as possible done, to a minimum level of acceptable quality, by as few people as possible, who they paid as little as possible.
I had friends who worked for IBM after we graduated from college in 1988. I asked them to count the number of layers between themselves and the CEO. I think there were fourteen such layers. (At the time, IBM also owned a country club in the Poughkeepsie area that employees could use for a nominal annual fee.) Later, IBM’s downsizing involved removing entire layers of management.
Sometimes downsizing means abandoning or selling marginal product lines or entire businesses. Ideally, you would fire the unproductive workers while keeping the all-stars. Or perhaps you encourage the older, more expensive employees to take early retirement, so that the replacement staff is cheaper.
Wow. If we assume that each manager had at least two people directly under him, that would mean at least 3^14-1, or 4,782,969 people working at IBM, of which a third would be middle managers.
It’s doesn’t ‘all boil down’ to that. You’re just painted with a broad brush.
Sometimes the business is in jeopardy of failing so it’s time to eliminate redundant positions, get rid of salaried employees (and bring in lower paid hourly employees) or just plain fire some of the people and make the rest work harder. Sometimes, not doing this means everyone will lose their job if the company goes out of business.
Sometimes the business is doing okay, but they want to continue doing okay. They don’t want to wait until their bottom line goes from 9% to 4% and they have to do something drastic. So they layoff a handful of people now instead of waiting until times are really bad and having to, say, layoff even more people, raise prices, make adjustments to employee health care plans (etc).
Also, yes, sometime the business is doing very well, the owner is making tons of money and he just wants to make more. IMO, there’s nothing wrong with that. It’s a business, it exists for the sole purpose of making the owner money, it’s not a charity. Richard Branson, Sam Walton, Ray Croc…they didn’t get rich by handing people money just because they had extra money to hand out (WRT to employees). There’s nothing wrong with a company wanting to be more profitable.
Look at it this way. Imagine you’re running a small business. Let’s say it has 100 employees. One day your accountant and some of the upper management come to you and tell you that they’ve identified 3 positions that aren’t needed anymore. In those 3 positions are 8 employees (total). They hardly do any work as is and what they currently do can easily be shifted to their managers and the people working below them without adding anything to their payroll. Their jobs were necessary at one point in time, but with more automation and changes in the internal structure, they’ve basically become obsolete. They’ve been working their for about 5 years each, but you’ve never met any of them for more then a few minutes. You might know their name, but probably wouldn’t recognize them if you bumped into them at a grocery store. They each make $35,000 a year.
So, do you downsize by 8% and ‘wreck’ 8 lives? Or do you continue to pay these 8 people over a quarter of a million dollars per year+ payroll taxes?
What if you were doing really well? If you were taking home a million dollars a year and you could get rid of these 8 jobs and now take home, say, an extra $140,000 a year plus put an extra $140,000 a year back into the business?
What if you weren’t doing so well? What if you had a million dollars in AP that was over 90 days? Would you maybe want that extra 40 grand a week to start chipping away at that or would you rather just keep paying these 8 guys to sit on their hands for the better part of 8 hours a day?
There are very few companies that I’ve worked at or heard of that have actual “optimal” ratios of employees per amount of work. When times are good, employees will pretty much always be happy to spread out the workload, and managers will want to hire more, both to keep the current employees from moving on if they feel overworked compared to other places, as well as the fact that having a growing department tends to look good for the manager. When times get tight, that slack can be reigned in.
Plus, you often end up with redundancies–maybe one department has a IT-type position attached to it that does work just for that one department, but if it’s belt-tightening time, the functions of that job can be rolled back into the main IT group.
And, of course, time can cause all sorts of organizational oddities. I recall one time a company I was at went through some optimizations because they found various situations where, say, a senior manager had two managers and each of those only had one or two employees under them–not the way it started, but just how things evolved over time. That kind of thing can be streamlined without causing loss to the end customer.
I’m reminded of a particular scene from the movie Office Space, in which one character is meeting with the downsizing consultants and attempts to justify his continued employment.
I’ve twice left companies because they decided to get rid of entire business units. They decided to focus on other parts of the business, and laid off everyone that was working in the wrong area.
One of those companies is still around. For now. Kinda.
The other one was subsequently acquired by another tech company.
How do you figure? If there are sixteen layers, and starting with the CEO each layer down is twice as large, there would only be (2^0 + 2^1 + … 2^15) = 2^16 - 1 = 65535 employees (half middle management).
Of course, that is also a pretty ridiculous structure. But in the quoted example, I’m guessing that there’s some mixture of exaggeration, “layers” consisting of a single people, and an unusually long chain of command within that company. E.g., think of an organization chart where the top has a VP, assistant VP, deputy assistant VP – that’s three “layers” on paper, without exponential growth. That makes room for organizational units with five or twenty employees at the same level.
I was at the bottom of the totem pole at IBM; my boss (First Line Manager) had 30 people working for her. Her boss (Second Line Manager) had six; that boss’s boss had about five. Also, there were only about eight levels between me & Sam, el queso grande. Total of about 400,000 employees at the time, but that number was dropping pretty quick at my worksite.
Here is a story of middle management in a large publishing house. In the early 90s my daughter went to work as a scientific editor for a tiny publisher–she was employe number 8. When she needed something, from a paper clip to hiring another editor, she explained why to the owner and either got it or didn’t, but immediately. The company was acquired by large publishing house. My daughter was suddenly working for a big company. Now when she needed something, she had to go to her boss, who had to go to his, ultimately (if it was hire another editor) there were five levels of managers above her. By the time the request got up, the original explanations were lost and, in any case, it took weeks or months to render a decision. Eventually, she left the company and now works as a scientific editor for a medium sized publisher and has a lot more autonomy.
I work for a large sales company. 5 years ago, in my location, we had about 24 inside sales people. Today, we have 12. In the mean time, sales has gone up, by probably 25%.
What happened? Well, there has been some automation of the sales desk job, some orders customers are handling by themselves online, but mostly, sales are working longer hours, and skipping some of the preventative work. So they are overworked, cranky and chronically putting out fires rather than being on top of things.
Around here, apparently that is what is considered increased productivity.