Weigh Human Factor During Retrenchment
For a period of economic expansion, the headlines on these pages have been unusually bleak this year. They tell of big staff reductions and other dramatic retrenchment efforts at many of the nation’s major companies.
In some cases, these moves reflect the unevenness of the current recovery--leaving oil companies with overcapacity and sagging profits and computer companies with warehouses of unsold products. In other cases, they are a response to the lifting of protective federal regulations, forcing banks and transportation companies to compete more actively.
The change extends beyond these industries, however, to encompass a broad range of American enterprise. It is part of a tough reappraisal that many companies are going through in response to new challenges. Inflation, which made it relatively easy to grow fat and still make money simply by raising prices, has been substantially squeezed out of the system. Profits suddenly are more difficult to maintain, even in good times. Competition from foreign companies, not taken too seriously in the first two decades after World War II, now bedevils American firms at home and around the world.
The new corporate self-examination is a healthy trend, for the most part. Many companies are paying more attention to how they manage and motivate people. Theirs is a patient campaign to regain innovative spirit and operational efficiency lost through inattention during the most recent growth periods.
But the trend has its harsher side as well.
AT&T; announced in August plans to trim about 24,000 jobs. Big California banks have been closing branches and reducing staff. Atlantic Richfield is putting itself through a staff reduction of about 7,900 through early retirement incentives and firings. That’s just a sample of the major cutbacks. In other industries, management has been winning wage concessions from unions to get costs down, moving operations out of the country or selling off major parts of the company.
Pushed Hard
Some of the most severe retrenchment efforts have been at companies that pushed hard for growth and diversification in the past decade or so, buying up businesses far removed from activities they know best. They learned a hard lesson that new businesses may not be easy to manage; indeed, they can distract a company from managing its core business well.
Unfortunately, a lot more than management reputation suffers from this lesson. Many of the cutbacks involve dismissing even long-term employees as companies buy and sell huge operations.
In an unusual blast at some of the current labor cost-cutting efforts, Labor Secretary William E. Brock told the AFL-CIO convention in Anaheim last month: “Now, I just think it is stupid to try and improve our competitive position by reducing our standard of living.”
To many corporate leaders, such criticism is naive. Corporations cannot operate for long without adequate profits.
Still, there is reason for concern that some companies are as quick to cut back as they were to expand. They pay more attention to the short-term benefits for the bottom line than to the long-term development of the business. Some of this pain is inevitable in a period when economic conditions have changed so radically. But American corporations in good times and bad must pay more heed to the human side of the business. The acquiring and spinning off of operations involves not just things but people. And as managers fail at the task of providing stable employment, they lose credibility not just with the immediate victims but with those lucky enough to be allowed to hang onto their jobs.
Fortunately, much of today’s corporate reappraisal is more basic and promising than a simple reversal of the acquisitive excesses of the past. There are substantial efforts afoot to encourage worker participation in management decisions, to engender the kind of worker dedication that some foreign competitors can count on. This is a process that takes longer but builds more competitive muscle.
