Rise in Company Layoffs Has Created Thriving Industry
On March 17, 1987, Anacomp completed its purchase of Datagraphix, a San Diego-based subsidiary of General Dynamics. The next day it fired 250 employees.
The move was not unexpected. Company employees had known that the division was for sale and the Datagraphix management group had previously publicized its own employee reduction program. The problem Anacomp faced was how to handle the inevitable pruning that would follow the acquisition.
“People often ignore the post-merger blues,” said Stephen Haines, managing partner in University Associates Consulting and Training Services. “Employees are worried about where the next shoe is going to drop. They worry about their long-term future with the company. They see their friends are out of work and think that ‘there, but for the grace of God, go I.’ ”
Handling layoffs has become an increasingly common problem even during good times. In the last week in June alone, First Interstate Bancorp announced that it will lay off perhaps several thousand employees; the Tennessee Valley Authority said it would lay off 7,500 workers--about 23% of its work force--and IBM announced a program to cut its work force by about 4,000.
New Industry Born
In the wake of the corporate restructuring now under way in America, a new management discipline--change management--has emerged.
“Mergers and acquisitions, downsizing and ‘greenmail’ have created an industry that was not there,” said Jan Thompson, senior vice president and director of the San Diego office of Drake Beam Morin, the largest out-placement consulting firm in the world.
Though Drake Beam concentrates on helping laid-off employees find new jobs, that is just one aspect of change management. The field is populated with consultants, human resource professionals and organizational development people whose primary task is to help companies successfully plan, evaluate and execute big organizational changes.
The OD Network in San Diego, an association of professionals concerned, in part, with change management, has 150 members. About half are independent consultants and half work inside companies. Membership has increased 30% in the last year, according to Joel Snyder, a management consultant and spokesman for OD work.
Of course, changes in business are not new. “The one thing that doesn’t change is change itself,” said Lee Van Horn, a partner in The Van Horn Handley Group of Rancho Santa Fe, a management consulting firm that has helped companies from Saudi Arabia to Brazil manage change.
But the nature, scale and content of the changes are different. “The time frame has changed,” said Haines, who as executive vice president managed the layoffs at San Diego-based Imperial Corp. of America in 1985 and 1987. “The amount of change in the next 15 years will equal that in the past 85 years.”
Moreover, changes are occurring on a much vaster scale, fueled in part by international competition. “In each industrial grouping there is a consolidation as world-class firms do a variety of things to survive,” Van Horn said.
Consolidation has led to a buying spree by large companies. “We are in the midst of the largest merger and acquisition boom in history, both in terms of dollar amounts and the size of the companies involved,” said Michael Hergert, associate professor of management at San Diego State University and the co-author of the recently published “Surviving Mergers and Acquisitions.”
In the past, large companies would generally buy smaller companies. Today, large companies are just as likely to buy other large companies. “That creates redundancies which lead to layoffs,” Hergert said. “Layoffs lead to trauma. And the trauma can cancel out the economic advantages of the merger.”
Difficult Task of Merger
Indeed, 50% of all acquisitions don’t work, and wind up as divestitures. “It is very difficult to integrate two companies,” Hergert said. “It is hard to take two cultures, structures, and formal systems from companies that may have been competing and make them work.”
“It takes skilled professionals to do it,” Haines said.
“To merge two cultures requires long-term change,” said Tom Handley, a partner in The Van Horn Handley Group. “It takes a planned and conscious effort.”
With change management, a company’s values must first be identified. Then, a decision must be made about which values to keep and which to discard. Finally, a program must be developed to convert values into behavior.
“You spend a lot of up-front time determining the culture of each company,” Van Horn said. “You find the commonalities, determine a blueprint for the future, communicate those values and translate that into action.”
It is a tricky business. Even a systematic program does not always produce the expected results. Last month, for example, Wayne Widdis, senior consultant at University Associates, spent nearly a week meeting with leaders of local 599 of the United Auto Workers--the union’s largest local--and the management of the Buick plants at which they work.
GM, Union Were at Odds
For several years, General Motors had encouraged the unions to get involved in the strategic planning, which includes issues such as layoffs. The union had been suspicious that the move was another way for management to manipulate it.
More than 40 people representing management, the union shop committees at four plants and the top union leadership participated in a series of meetings. Some of the sessions where just for the union members. Some were just for management. And some were conducted jointly. All in all, “It was wooly,” Widdis recalled.
The outcome was something of a surprise. “I don’t think that they can have a single strategic plan,” Widdis said. “They are part of two different entities.” Instead, he advised the union and management to develop separate plans, recognize where those plans are at odds and identify areas of agreement.
Change is not always as dramatic as labor negotiations, mergers and acquisitions, or large-scale layoffs. It can come in small, continuing increments too. For example, Head Start programs--government-funded preschools--have been funded nationwide primarily through community-action block grants distributed by regional umbrella social-service agencies. In recent years, however, Congress has begun to appropriate more money directly to Head Start.
“The tail has begun to wag the dog,” said Barbara Haxton, training director of the Ohio Head Start Assn. “And the stresses between the directors of the community-action agencies and the Head Start directors are already prevalent.”
To help cope with that stress and manage the changed relationship, Haxton has set up, in conjunction with University Associates, five multiday seminars over the next nine months. The kickoff will be a five-day program in which both Head Start directors and community-action agency directors will participate in a trial run of the new environment.
An Expensive Service
Change management isn’t cheap. The Ohio Head Start program will cost more than $35,000, and each participant can expect to spend another $700 or so for food and lodging.
“It is impossible to estimate the cost of changes or the size of the field,” said Snyder, president of Joel Snyder Corp. in Pacific Beach. “The money is spent in so many different ways.”
But professional services represent only 33% of the actual cost of a typical seminar. The labor time lost by people attending the seminar is often twice that amount.
But, if learning to manage change is expensive, ignorance can be more so. “A typical wrongful-discharge suit settlement that does not go to jury is $100,000,” said Drake Beam’s Thompson. “If the trial goes to jury, the typical award is $500,000.”
In contrast, well-managed job counseling, or out-placement, for an executive at the $80,000 annual salary level costs the equivalent of two months’ salary, Thompson said.
