Cutting Costs, Not People
What’s the Big Idea?
The bursting of the dot com bubble in 2000 and the real-estate bubble in 2008 not only gutted workers’ bank accounts – it shook to the core whatever trust they had left in their employers. This is a story that began in the manufacturing sector, as companies began to close down factories, ship jobs overseas, and to default on long-promised pensions. Since 1998, according to the AFL-CIO, three million jobs have been lost in US manufacturing. The writing was on the wall: this was no longer the “we’re-all-in-it-together” America of the post World War II golden years. “You’re on your own, kid. Watch your back.” was the unmistakable message to the younger generation. The response of many businesses was, not surprisingly, “Look. We’re a business. We have to cut costs to keep competitive.”
This breach of trust between businesses and workers has had dire consequences for both sides. For workers, the consequences are obvious: lack of job security, and lack of motivation and investment in their work. Companies, too, are finding it harder and harder to retain promising young employees, who are quick to jump ship at the sight of a better opportunity. The HR and training costs of hiring repeatedly for the same positions are enormous, not to mention the incalculable bottom-line effects of a semi-committed workforce.
Fortune magazine named Boston Consulting Group #2 among the 100 Best Companies to work for in 2011. Rich Lesser, BCG’s Chairman for North and South America, shares one good reason why; from overreacting to the dot com bust with a wave of downsizing, BCG learned a key lesson: people need to come first. A company is only as strong as the bonds of trust and cooperation among its staff – erode employee loyalty, and you rot out the core of the business. Therefore when the 2008 recession hit, BCG decided to cut anything and everything before personnel.
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What’s the Significance?
“Retention, even in difficult times,” says Lesser, “becomes a bellwether for employees about whether they should invest back in you, and so your priority is . . . to know the things that are most important to your future success, and invest starting with the people.'”
“Conscious capitalist” companies like Whole Foods attach a fully-fleshed ideology to this commitment, using internal language (e.g. “team member” for employee) and structures (e.g. public forums for passing feedback up the corporate ladder) to codify their loyalty to all of their stakeholders and their awareness of their common humanity. This is nice, powerful even, but not necessary.
It would be sufficient – and a huge step forward – for every business to recognize its employees as the very essence of the company, and to demonstrate that recognition by taking every possible measure to retain them, especially during tough times. Belt-tightening, people can handle – presented well, it can even strengthen their collective bond as mates on a storm-tossed ship. But (to stretch the metaphor almost to its breaking point) tossing people overboard in an effort to lighten the load isn’t likely to do much for the morale of the rest of the crew.