The Hidden Leverage of Human Capital

More than 20,000 times last year in the United States, according to the Bureau of Labor Statistics, midsize and large companies responded to adversity by slashing on average about 100 staff members at a time. Considering all the news coverage about the economic downturn and the poor job market, that might, at first glance, seem like a dog-bites-man story. But that is a lot of jobs. Did circumstances always merit the drastic actions? If so, were the actions taken deliberately and carefully, with all appropriate respect toward the people involved? What sorts of provisions were made to ensure that key talent was protected? These questions are important because they go to the heart of how companies avoid lasting damage in the marketplace and build long-term value.

Trying to get a handle on the answers from publicly available data is problematic, as even a broad-based research effort would be brought to a halt at the gates of internal company performance information and organizational dynamics. But it is a safe assumption that many of these 20,000 organizations did destroy value somewhere along the way by cutting capacity that they soon had to replace, by making poor choices as to who should go and who should stay, by being careless in communicating the rationale for change and protecting the motivation levels of surviving employees, and by missing the opportunity to rethink their business model to optimize their positioning for the recovery ahead.

Organizations such as Wal-Mart Stores, Cisco, Charles Schwab and even American Airlines have recently tried to rehire laid-off employees.1 But in so doing, the churn they generate often serves to demoralize employees and create an environmental uncertainty that compromises staff engagement, loyalty, customer service —and ultimately, company performance.

The broader issues here go well beyond layoffs. Is there a right way to manage a company through a time of challenge or tepid economic growth? What general guidelines can be discerned from the lessons of the past? And what sorts of decisions can managers take today to improve the odds that their companies will emerge as the winners of tomorrow?

Slash and Burn: Re-Engineering and Core Competencies

It used to be an article of faith that re-engineering initiatives, analytically evaluated and quickly implemented into an organization’s operations, could serve as a magic bullet by helping companies realize previously unimagined efficiencies.

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References

1. S. Armour, “Sorry We Cut Your Job — Want It Back?” USA Today, Wednesday, Aug. 29, 2001, sec. B, p. 1; and I.P. Cordle, “American Back to Business in Miami,” Miami Herald, Sunday, Feb. 3, 2002, sec. E, p. 1.

2. S. London, “Wanted: Ruthless Axeman With People Skills,” Financial Times, Nov. 14, 2001, p. 17.

3. S. Maranjian, “Employees vs. Customers vs. Shareholders,” Fool.com, Jan. 31, 2002, www.fool.com/news/foth/2002/foth020131.htm.

4. J. Useem, “What It Takes,” Fortune, Nov. 12, 2001, 128–132.

5. D. Eisenberg, “Paying To Keep Your Job,” Time, Oct.15, 2001, 80–83.

6. G. Anders, “BEA Systems: A Study in Sustainability,” Fast Company, March 2002: www.fastcompany.com/build/build_feature/churchill3.html.

7. “The Road to Recovery,” white paper, Sibson Consulting Group, New York, November 2001, p. 2.

8. P.V. LeBlanc, J.P. Gonzalez and J.A. Oxman, “Maximize Your Compensation ROI With High-Yield Investments in Human Capital,” Compensation & Benefits Review 30 (March–April 1998): 59–68.

9. “We Like 40% of Our Staff,” Automotive Management, Aug. 13, 1999: www.mtselect.co.uk/articles/40staff.html.