Big Firms Squander Their No. 1 Asset: Secure Workers : Recession: Massive layoffs, instead of creating efficiency, can produce demoralization in the ‘survivors’ and further slippage in productivity.

When IBM announced plans to cut 20,000 workers from the payroll as part of what CEO John Akers calls a “fundamental redefinition” of its business, the company’s stock jumped $2.75 per share. Industry analysts praised the move as essential if IBM is to maintain a viable position in an industry that has surged ahead of its longtime leader.

In calling for a major overhaul, IBM is hoping to introduce flexibility, speed and creativity into the organization, in an effort to halt a downward spiral of profits and to recapture lost market share. This is a familiar theme among Fortune 500 companies, many of which are pursuing the downsizing craze of the ‘80s with renewed vigor in the ‘90s, for much the same reasons as IBM. Enormous layoff notices have also gone out from General Motors, TRW and Xerox, among other companies.

Unfortunately, hindsight suggests that these efforts often fail to achieve their intended results. Despite the collective attempt by corporate America to downsize in the 1980s, productivity in the last half of the decade declined steadily in the manufacturing sector of the economy and remained virtually flat in the service sector.

An often overlooked reason for this lackluster performance is the profound loss of morale among the survivors of the corporate purges. In the interest of becoming “lean and mean,” many corporations severely slash their work forces, with little concern for the impact of their actions on the health and welfare of their employees who, after all, are responsible for the ultimate success or failure of the business.

In a world in which information, raw materials and technology move freely across corporate and national borders, the bulk of an organization’s assets are interchangeable with those of any other organization. In this environment, the most powerful asset that a company can hold is a dedicated, highly skilled, innovative work force.

Unfortunately, when it comes to restructuring the organization, companies seldom view employees in this light. Instead, workers are reduced to an item on a balance sheet, an abstract “head count.” IBM, while long noted for its commitment to employees, is guilty of the same lapse when the talk turns to reorganization.

This casual dismissal of the corporation’s most valuable asset has troubling implications for the long-term health of downsized firms, including IBM. While wholesale reductions in the work force may succeed in padding the bottom line, they can make it difficult to generate the sustained productivity and employee commitment needed to compete in the long run. Massive layoffs, if not managed carefully and humanely, produce not a higher level of productivity but a climate of fear and profound demoralization that results in further declines in productivity.

What level of commitment can be expected from employees who live in constant fear of losing their jobs? IBM, having cut 20,000 employees in 1991, has just announced the elimination of 20,000 more. This is the company’s sixth major restructuring since 1985. What assurance do even the most conscientious IBM employees have that they will not be swept away in the next wave of restructuring?

Over the years, IBM has been held up as a model employer, and for good reason. The company has a well-deserved reputation for, among other things, aggressively training new recruits and retraining seasoned employees; providing a generous menu of benefits (which now includes day care for the children of employees), and hiring and promoting women and minorities.

IBM’s progressive, thoughtful approach enabled it to recruit and retain the best and brightest workers, a primary reason why the company’s stated mission of providing the “best customer service in the world” has at times been an objective assessment of its reputation.

The question is whether IBM can uphold its corporate mission in the midst of the transition ahead. The answer will be determined in large part by whether the company holds fast to its time-honored tradition of service to its own employees. In the quest to become smaller, IBM must not lose sight of the very resources that enabled it to become a giant.

Earlier this year, Akers shocked the business world with an uncharacteristically brutal diatribe, leaked to the press, in which he defended his own performance and blamed the rank-and-file for IBM’s declining fortunes. Those employees who remain after the layoffs will remember his harsh criticism. In the wake of the restructuring, they will look to their CEO for leadership, and watch for signs of assurance that he won’t sacrifice their jobs as a way of saving his. For years to come, they will watch closely.