Butcher Theory Cuts Lifelines to Future
Suddenly the butcher metaphors of American management are back in vogue. These days it is desirable to be “lean and mean.” You get that way by “trimming the fat” and “cutting to the bone.” General Motors is laying off 20,000 workers. AT&T; is slashing 27,000 jobs. General Electric is paring thousands from its rolls. Even IBM is easing 10,000 of its employees out the door.
The Butcher Theory of Management is one of America’s oldest and most revered guides to maintaining profits when the going gets tough. Simply cut your employment and then--presto!--you get lower costs. That means better earnings and higher prices for shares of stock. And these days that means security against the perils of corporate raiders, foreign competitors and mounting corporate debt. So bring out the knives and start carving.
Not so fast. The Butcher Theory was fine when the American economy rested on mass production and workers needed only to be punctual and follow orders. Then, workers were just another cost of doing business, like the factory and equipment. The simplest way of trimming costs during downturns was to lay them off. If and when demand picked up, the workers could be rehired and resume what they were doing before.
But these days mass production is moving to places around the globe where workers earn a fraction of U.S. wages. To stay competitive, American firms are being forced to become highly flexible--to continuously devise new products and improved production processes. They have to customize their wares for specific uses by particular customers. Stable mass production is out; innovation is in.
So General Motors has been trying to develop the Saturn, which it calls the “car of the future.” IBM has been aiming at a host of new computers and work stations. AT&T; has been seeking to devise telecommunications technologies such as “area networks” and digital switches, which rely on advanced software. General Electric has been trying to put information technologies to work in new products and processes.
But innovations like these can’t come from the top. They have to bubble up from below, where engineers, production workers, marketers and sales people continuously figure out new solutions to emerging problems. The commitment and experience of these on-the-line troops make up these firms’ most important assets.
The Butcher Theory of Management doesn’t fit with this new reality. Workers who know that they’ll be sacked in the next crunch won’t go out of their way to discover new products and processes. How can they make such commitments when they’ve got to watch their backsides? Workers who are laid off, meanwhile, take away valuable experience. Because technologies and markets are continuously evolving, these workers’ current insights into how products can be improved or customers’ problems resolved will be irrelevant when and if they’re rehired.
Thus, instead of laying off workers, companies must do everything that they can to retain their employees and tap their knowledge and experience. One way to do that is to make a portion of their wages turn on the firm’s profitability. When times are good, workers share in the prosperity. In downturns their wages shrink, but they don’t lose their jobs.
Sadly, this lesson has been lost on our major firms, which still adhere to the Butcher Theory. As a result, their progress is stalled. General Motors is now stumbling, and quietly scaling back its Saturn project. AT&T;’s newfangled telecommunications ideas are barely getting off the drawing boards. IBM is now struggling to stay abreast of its Japanese competitors. General Electric is scrapping some of its most advanced product designs.
By relying on the Butcher Theory of Management for improving short-term profitability during times of stress, American firms are sacrificing their long-term competitiveness. In cutting their employment, they are cutting their lifelines to the future.
