Downsizing Reassessed

From: The Courier Journal
By:Wayne Tompkins  July 16, 2001

For Larry Hartog, the nightmare of recruiting and training skilled workers from a sparse labor pool remains a fresh memory. So much so that, even in the throes of a slowing economy, he hates the thought of letting such employees go.

Hartog, whose company, Kentucky Manufacturing Co., makes semitrailers, foresees the day when the economy awakens from its slump. He doesn't want a rerun of what happened after the labor market got tight three or four years ago.

''When we come out of this thing, we don't want to go through what we had to go through then,'' Hartog said. ''Almost every manufacturer I talk to, that's our biggest concern.''

While many companies -- especially those that are publicly held and subject to quick-fix pressure from investors -- continue to fall back on the pink slip, some small manufacturing companies are rethinking layoffs as an option. And those that have no choice but to let people go are doing so with far greater care and caution.

What makes this slowdown different is that, even with high-profile job cuts announced almost daily, the nationwide unemployment rate still is only 4.5 percent -- 3.1 percent in the Louisville area.

Demographers have warned that a shortage of skilled labor is likely for at least a generation. Advances like Internet job boards allow laid-off employees to line up new jobs without even leaving their desks, meaning they're less likely to wait out a downturn and ask for their jobs back. Then there are the soaring costs of replacing an employee.

''In many ways, the retention problems organizations struggled with in the last several years were a direct result of the downsizings that preceded them,'' said Jennifer Schaefer, regional vice president of Lee Hecht Harrison, a career-services firm with an office in Louisville. During those years, many companies found they had cut too far, not planned for the long term, communicated poorly and alienated remaining employees.

The after-effects of poorly executed job cuts can be so damaging that at least one workplace expert is taking a hard line on downsizing.

''Don't do it. Avoid it like the plague,'' said Sharon Jordan-Evans, a California author and workplace consultant. The co-author of ''Love 'Em or Lose 'Em: Getting Good People to Stay,'' Jordan-Evans said companies that downsize suffer irreparable damage, both inside with survivors and outside with prospective employees, as well as with customers and even, believe it or not, with Wall Street.

''In the early '90s, Wall Street responded very positively and immediately to a huge downsizing, but they are not doing that anymore.''

Rather, some savvier investors have begun to see downsizing as a symptom of both fundamental management flaws and a lack of vision and sound strategic planning that could signal further trouble down the road.

In past decades, she explained, ''When unemployment was at 9 percent and there were plenty of feet on the street, there was a rather cavalier attitude about replacing people who were laid off. There was a feeling that if a company laid off 7,000 people, there were going to be 7,000 qualified replacements roaming around when the economy picked up -- and they were.''

That's not likely this time around -- at least in some fields requiring years of training, apprenticeship and experience, which often are provided at an employer's expense.

Special projects. At Kentucky Manufacturing, as work slows for painters, welders and electricians, the company is finding other projects to carry those employees through.

''We may look at doing some additional training when things are slow,'' Hartog said. ''We might look at doing some special projects that are difficult to do when times are busy -- like computer projects in the offices. Out in the plant, for example, we're doing maintenance projects like painting that you just can't get to when you're running hard every day.''

At Louisville's International Systems of America Inc., ''We call it 'rerouting the schedule,' '' company President Odette Salman said. A servicer of fire alarms and security systems, her company also remembers the lean years for finding good employees.

''We are in a high-tech market, and we do have to give them extensive training,'' Salman said. ''We even have to send them to some of our locations out of town in order to get the proper training for all the systems they work on.''

Salman said better options include helping employees schedule their work so they can take on a second job until things pick up, and then rehiring them full time. ''You just try to keep them busy,'' she explained.

And sometimes reductions in work hours and benefits can be negotiated during a slowdown -- with one caveat.

''Drop everything else, but don't drop the insurance,'' she warned.

One solution: cross-training. Vivek Sarin, chief operating officer at Shelby Industries Inc. in Shelbyville, said the policy over his company's 20 years has been never to lay off fulltime employees.

''We've certainly seen some ups and downs in the economy, and as we go through the current slowdown, we're holding true to that value,'' Sarin said, adding that activity at his company has slowed down a bit recently. ''What that's meant is that in a couple of positions I've used this as an opportunity to cross-train some people into some other areas, and we've managed to do that successfully.''

The company, with about 70 employees, makes mechanical hand winches, trailer couplers and jacks and other towing and trailer accessories.

Small manufacturers, the vast majority of them privately held, have more leeway to take a long-term view, Sarin said.

''The average recession lasts only 11 months,'' he said. ''Smaller businesses don't have the pressure of stockholders and Wall Street breathing down our necks, so we can look at things with more of a long-term perspective.''

Technology also helps small companies, allowing them to absorb economic changes upward and downward ''without always having to cut or add people right away to meet your overall productivity or output.''

Tending relationships. George Bissig, general manager at Louisville's Falls City Machine Technology, said that even in the '70s and '80s, when higher jobless rates made post-downturn replacement workers more plentiful, keeping skilled workers was always considered good business.

''We try to keep the people that we've trained and been with us a while and have gone through all the ups and downs,'' he said.

With 35 employees, companies like his ''are closer-knit. It's not just numbers -- it's more of the personal touch,'' Bissig said.

To a point. ''Of course, the bottom line is what rules the roost.''

Reputations at stake. JordanEvans said companies that have no choice but to cut jobs need to lay the groundwork now for coping with the inevitable recovery, when labor shortages of the past few years likely will return with a vengeance.

Talented employees have long memories, she warns.

''If I have a choice of going to a company that has a history of layoffs and a company like Southwest Airlines that has never had a layoff in its history, why wouldn't I go there? It says something about how they value people.''

To limit the damage a layoff inflicts, a business must tend to three constituencies: those who've lost their jobs; the survivors left behind; and, often overlooked, the news media.

''You want your reputation to continue to be as an employer of choice, and it's pretty hard to do that on the heels of a downsizing,'' Jordan-Evans said.

''If you've never had a really terrific, highly paid public relations person in your company, now's the time to get one.''

While larger companies usually have such professionals on staff, smaller companies can contract with one, she said.

Generous severance packages, a free flow of accurate information and outplacement support are the best medicine for those let go.

While that prescription is hardly original, Jordan-Evans said companies continue to make the ''huge mistake'' of not following through.

''When it's time to staff up, the people you might want to have come back will only come back if they were treated well as they were leaving -- and some of them will come back,'' Jordan-Evans said. ''Make sure you publish internally what kind of packages the departing employees are getting.''

''Aftercare'' of survivors. Productivity dips and the ''second wave'' of departures -- demoralized employees who leave on their own -- are two common and devastating downsizing aftershocks.

While small manufacturers like Hartog would prefer avoiding job cuts altogether, pressure will mount if the economy weakens further.

Many manufacturers have exhausted, or are close to exhausting, the safety net of temporary workers that allows them to adjust their labor force up and down with demand and cushion full-time employees.

''All of the temporaries are gone now,'' Hartog said. ''Over the next 60 to 90 days, we'll assess what we think the overall direction of the economy is and decide whether or not we need to downsize again to a smaller company.''

But it won't be any of the skilled folks, he said.

''I think we've all realized, once you invest money in somebody . . . that's why we don't let very many of our office folks go. Because we invested a lot of money getting them to understand how we do business. Six months to a year from now, when things pick back up, I don't want to have to go back and train someone again on how to invoice our trailers.''