Preserving Talent

Layoffs are rampant these days, but even so the negative consequences of this recession are taking shape differently than in the past.  So far.

There are no comparable data from earlier recessions. But Laura Sejen, director of the strategic-rewards practice at consultant Watson Wyatt Worldwide Inc., says companies are trimming costs in more ways than in previous downturns, when they relied more heavily on layoffs.

What other ways?

Prompted by slackening demand for consumer electronics and automobiles, chip maker ON Semiconductor Corp. will cut 1,850 jobs -- nearly 13% of its work force -- and close four fabrication plants by early next year. But that's not all. ON is also suspending bonuses and raises, cutting discretionary spending, idling factories for as many as 12 weeks and requiring managers to take as much as six weeks off without pay.

Employees at ON and elsewhere are learning that in this recession layoffs are only part of the pain. Many companies are also cutting the pay, hours and benefits of those who survive.

What is driving the change from the pure layoff strategies of the past?

She [Laura Sejen] and other experts cite two principal reasons for the shift: The speed and depth of this recession is forcing employers to cut costs steeply, and many also worry about retaining enough talented workers. When the economy recovers, "those may be heads you wish you hadn't cut," Ms. Sejen says.

A recognition that talent means something, and attempts should be made to preserve it.  What a revelation!

Broad-based trimming allows executives to "keep your options open" amid uncertain business conditions, Mr. Colvin says. "If you want to do it all through layoffs, than you have to decide ahead of the game what your future business is going to be," he says. Right now, that's "a difficult call to make."

Some companies have a very defined strategy for holding onto key knowledge workers as long as possible.

At Corning Inc., that means deploying "rings of defense" to cut costs as sales dip, says James Flaws, vice chairman and chief financial officer. Last summer, the Corning, N.Y., maker of glass for flat-panel screens froze hiring and cut discretionary spending. In the fall, it shifted many employees to four-day workweeks and began eliminating 1,400 temporary and contract workers.

In January, Corning implemented its third ring, cutting 3,500 jobs -- about 13% of the work force -- consolidating factories and freezing salaries, Mr. Flaws says. If sales continue to fall, he adds, "we might have to do more," including selling assets or cutting pay, benefits and research-and-development spending.

Unfortunately the problem is that many companies have already effectively hit that "third ring"... if not the fourth.  This is going to be a painful year in many industries.

Comments

[Bill Waddell]

Interesting post, Kevin. I suspect the world is beginning to understand that this 'recession' is more of a permanent adjustment in the economy. For too many years credit has been ridiculously easy, houses, cars and everything else were sold on credit to way too many people who had no business buying such things. Now the house of cards has collapsed - and don't expect anyone to be in a big hurry to underwrite those high risk loans very soon.

Not only have the "C" and "D" lenders for cars and houses gone, even the predators pushing VISA cards on unemployed kids have disappeared from the college campuses. They won't be back because outfits like Lehman Brothers won't be around to pool and sell those high risk loans.

The upshot is that unlike previous 'recessions' there will be no pent-up demand to burst out. This means a more or less permanent decrease in the size of markets. The 2 million or so new cars that sold every year to people who really could not afford them will not be coming back. The number of IPods sold to kids with credit cards they should never have been given will represent a somewhat permanent shrinking of the IPod market.

Nothing is absolute, of course. Maybe mommy and daddy will step in and buy the IPods, but it will be at the expense of something else - clothes, fast food, beer money, who knows?

The companies you wrote of are the ones that understand this and they see the need for a more substantial, permanent reduction in their fixed cost footprint. Those companies that are treating this as a short term blip that will soon right itself like all previous recessions either have a plan to be the winner when people are allocating more scarce dollars, or they are naively heading for an even bigger disaster than they are now facing.

All in all, it should be a very interesting next couple of years. My outlook is that as we enter into an extremely competitive era all of those companies that either paid lip service to creating superior value through lean or ignored lean all together and ran off to China are screwed.