Wednesday, February 5, 2014

Today Business And New Economic Conditions

I discussed a new economic reality and what companies can do to preserve jobs in a down economy. As I continue addressing this issue with former CEOs, I find myself peeling the subject in layers as though peeling an onion.

As I have stated in the past, it is easy to layoff people or close manufacturing plants when the economy slows. It seems our business schools have not considered another possibility and we are perpetually stuck with laying people off to preserve profits.

At the same time, when you examine closely, you see this method is extremely unprofitable. Why? When you layoff a percentage of people to save a million dollars, for example, you don't openly discuss the repercussions. If your enterprise is to remain a going concern, you will eventually have to hire people to fill those vacant positions. When you rehire, you have to factor in the associated costs to fill the position. You have to advertise for the positions. 

You interview candidates which is time and then you train those people. The real dollar costs could be $3 million on a $1 million savings. That does not factor the intangible costs of lower quality customer experience that tarnishes your brand because former employees may have had better knowledge of customers' needs. As the layoff strategy incurs costs greater than the savings, it makes sense for many leaders to orchestrate financial engineering to hide the backlash of the unprofitable layoff strategy.

As an alternative strategy, consider the horse and buggy industry. As the proliferation of automobiles continued in the late 1800s, those horse and buggy companies changed their model. They started manufacturing cars. In this example, the move was reactionary. As technology and outsourcing continue to encroach on today's industries, a proactive plan is needed.

In another example, with the expansion of the digital age, paper manufacturers may be squeezed. Instead of shutting down plants, transform plants or look for new business abroad. As people use less paper and third world countries increase prosperity, new needs will arise. Furthermore, the global population continues to grow. Therefore, one opportunity for a paper mill is to transform the facility in whole or part from paper for newspapers and periodicals to toilet paper. This is an area technology cannot easily replace. In fact, with an increase in population and more countries participating in global commerce, this commodity will experience increased demand.

 However, this should not be a reactionary strategy like the horse and buggy companies. To thrive as your current industry dies, you should have your employees participate in this strategy. Have production look at the necessary equipment to make the change.
Sales and marketing should be researching new markets in the US and abroad. They should be talking to current and prospective customers as well as distributors and suppliers. In addition, it may be worthwhile to invest in training for key personnel in the targeted commodity.

If  leadership takes on the mindset that they are constantly training employees to mitigate the risks of a dying or transforming industry, they will have to think about training staff and management to perform in new territory. Even if your industry is bulletproof, it would be wise to use this strategy to navigate through recessions. That way you are less likely to fall into the cycle of laying people off and later filling the position with someone else. There are always new opportunities that can be exploited when faced with chaos. 

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