RESPONSIBLE RESTRUCTURING

CREATIVE AND PROFITABLE ALTERNATIVES TO LAYOFFS

WAYNE F. CASCIO

BERRETT-KOEHLER PUBLISHERS                2002

 

Back cover

DOWNSIZING IS NOT THE ANSWER

RESPONSIBLE RESTRUCTURING IS

Research proves that companies that downsize are not more profitable than those that don’t. Wayne Cascio shows that it makes good business sense to restructure responsibly to avoid downsizing and instead regard employees as assets to be developed rather than as costs to be cut.

Cascio explodes thirteen common myths about downsizing, detailing its negative impact on profitability, productivity, quality, and on the morale, commitment, and even health of survivors. He illustrates his points with real-world examples of successful approaches to responsible restructuring by such firms as Charles Schwab, Motorola, Southwest Airlines, and many others.

Responsible Restructuring provides specific, step-by-step advice on what to do and what not to do when developing and implementing a restructuring strategy that, unlike layoffs, will leave your organization stronger and better able to face the challenges ahead.

“At last, a clear and cogent business case for not laying off large numbers of employees when profits go down. Wayne Cascio blends vivid case examples and careful financial analysis to show why downsizing may be counter-productive, even when economic times are tough. A must-read for any executive who wants to be prepared to cope with tough times.”

Joanne Martin, Merrill Professor of Organizational Behavior,

Graduate School of Business, Stanford University

“Knowledge businesses depend on the engagement of their people to innovate and grow. Cascio makes the point, with compelling evidence, that the responsible management of restructuring can sustain, if not enhance, this level of engagement. Clearly, the more common practice of far less responsible behavior can have a devastating impact on the future of the enterprise. This book provides the needed guidance to know the difference and to take an informed path.”

Debra Engel, former Senior Vice President,

Corporate Services, 3Com

“Responsible Restructuring is a thoughtful, responsible, and necessary outline for management at all levels of corporate America. Professor Cascio has, with a short, but powerful book, issued a common-sense blueprint for restructuring in today’s rapidly changing business world.”

Eugene K. Anthony,

Retired U.S. Administrative Law Judge

Front cover

Wayne Cascio draws on the results of an 18-year study of S&P 500 firms to show that firms that restructure through downsizing are not more profitable than those that don’t, and often end up hurting themselves in the long run. Responsible Restructuring proves that it makes good business sense to restructure responsibly, treating employees as assets to be developed, so that they can be in a better position to help the organization achieve its goals. Cascio uses real-life examples from companies such as Compaq, Cisco, Reflexite, and others to illustrate successful approaches to responsible restructuring. Practical tips and step-by-step advice show readers how to develop a responsible plan for restructuring, and how to implement it effectively to make their organizations stronger while positioning them to face the challenges of the future.

“For business, the ‘bottom line’ is usually economic. But as Wayne Cascio shows, it is the human bottom line that is critical for achieving economic goals. Filled with sharp insights and clear guidelines, this book is a must-read for anyone concerned about the future well-being of the work-place.”

Christina Maslach, Ph. D.,

Professor of Psychology and Vice Provost,

University of California, Berkeley

About the author

Wayne F. Cascio has written extensively about employment downsizing and restructuring, and has consulted with a wide variety of firms on six continents. He is past chair of the Human Resources Division of the Academy of Management, past president of the Society for Industrial and Organizational Psychology, and is currently a professor of management at the University of Colorado-Denver.

Preface

This book is about changing manager’s perceptions of employees from costs to be cut to assets to be developed. Almost two million American jobs were lost in 2001. In many cases, these job losses represented conscious decisions by managers to reduce the size of their workforces through layoffs or selling off unprofitable assets. In others, it almost surely was the result of “slash-and-burn” tactics that simply copied what competitors were doing.

Yet not all companies follow these approaches. This book highlights creative and profitable alternatives that some companies take in their approaches to restructuring and cutting costs. Those approaches are termed “responsible restructuring.” The book shows that, especially in knowledge-based organizations, cutting people can often be disastrous, except as a last resort.

Consider this fact. Over the long term, any effort to develop an organization will encounter economic swings both up and down, as well as changes in markets, customers, products, services, and technology. I have found that “preventive planning” is a key difference between organizations that can deal with such changes in a systematic, orderly way, versus those that resort to knee-jerk reactions in order to respond swiftly (often through mass layoffs). Companies like Reflexite and Southwest Airlines (described in Chapters 5 and 6, respectively) are good examples of preventive planners. Each has built a plan for restructuring into the overall economic plan for its business.

• This book builds on the seminal publication I did in 1995 for the United States Department of Labor, entitled Guide to Responsible Restructuring.

What became obvious to me was that companies differed in terms of how they viewed their employees:

v  Employees as costs to be cut. These are the downsizers. They constantly ask themselves, “What is the minimum number of employees we need to run this company? What is the irreducible core number of employees the business requires?”

v  Employees as assets to be developed. These are the responsible restructurers. They constantly ask themselves, “How can we change the way we do business, so that we can use the people we currently have more effectively?”

The downsizers see employees as commodities – like microchips or lightbulbs, interchangeable, substitutable, and disposable, if necessary. In contrast, responsible restructurers see employees as sources of innovation and renewal. They see in employees the potential to grow their businesses. Chapter 1 highlights these differences, puts the issue of restructuring into broad perspective, and examines the consequences of treating employees poorly versus the payoffs from treating them well.

Chapter 2 presents the results of an analysis of the financial consequences of alternative restructuring strategies used by 500 firms (Standard & Poor’s 500, or the S&P 500) from 1982 to 2000. The S&P 500 is one of the most widely used benchmarks of the performance of U.S. equities. The study addressed two questions: “Are firms that downsize more profitable than those that don’t, or more profitable than other firms in their own industries, in the year of the downsizing, as well as up to two years later?” and “Over the same time period, are stockholders better off investing in a portfolio of companies that downsize, as opposed to investing in companies that don’t?” The answer to both questions is no. This is why it is reasonable to question the efficacy of downsizing as the preferred approach to restructuring, and to examine alternative approaches.

Chapter 3 explodes 13 myths about employment downsizing and presents the actual facts, based on systematic research. The myths address issues such as the profitability and productivity effects of employment downsizing; its effects on quality as well as on the morale, workload, and commitment of survivors; the security of jobs at firms that are doing well; and the health consequences of layoffs.

Chapter 4 presents the case for restructuring and the introduction of “high-performance work practices.” The latter include practices such as skills training and continuous learning, information sharing, employee participation in the design and implementation of work processes, flattened organizational structures, labor-management partnerships, compensation linked to employee skills and organizational performance, and customer satisfaction – as defined by customers. The chapter presents compelling evidence to support the conclusion that high-performance work practices have important, meaningful effects on a firm’s financial and nonfinancial performance indicators and that the most effective employment relationships are those in which open-ended inducements provided by employees are balanced by open-ended contributions from employees.

Chapter 5 presents 10 alternative approaches to responsible restructuring, using as illustrations Charles Schwab & Co., Compaq Computer, Cisco, Accenture, Motorola, Reflexite, Intel, Minnesota Mining and Manufacturing Company (3M), ChevronTexaco, Acxiom, Sage Software, Louisiana-Pacific Corporation, Philips Electronics Singapore, and Procter & Gamble. The chapter describes the specific practices these firms use to demonstrate their commitment to their people as assets to be developed rather than as costs to be cut. Even when cuts are necessary, firms such as these use practices that promote goodwill and loyalty, both among those who leave as well as among those who stay.

Chapter 6 highlights a small group of firms, public as well as private, large as well as small, that have implemented no-layoff policies, and it describes specific employment and business practices at three no-layoff companies: Lincoln Electric, SAS Institute, and Southwest Airlines. The chapter emphasizes that there is virtue in the stability of employment and that there is a no-layoff payoff.

Chapter 7 is a capstone chapter that illustrates what to do – and what not to do – when restructuring responsibly. It points out common mistakes that companies make when restructuring, along with advice on how to avoid those mistakes. It is a step-by-step guide to responsible restructuring that builds on all of the research and practical experiences presented elsewhere in the book.

Wayne F. Cascio

Golden, Colorado

June, 2002