Is your organisation lean or anorexic?

by Onno van Ewyk

Over the past decade, corporations around the world have been preoccupied with their staff numbers and with implementing strategies to reduce them. The objective has been to create lean organisations, trimmed of bureaucratic fat and bristling with competitive muscle. In the United States alone, some 3.5 million workers have lost their jobs to these programs since 1987.

Downsizing', 'rightsizing' and 'restructuring' have been the popular buzzwords used to describe the process of shedding staff. These words give a respectable image of strategic foresight to what would otherwise be regarded simply as wholesale layoffs or firings.

The question now being asked is, did these decisions reflect genuine strategic thinking or were they simply knee-jerk reactions to falling market share and profits? A survey by the American Management Association in 1992 of 547 companies that had downsized in the previous six years found that only 43.5% improved their operating profits. They also predicted that these companies would downsize again within a few years to try to shore up further market share losses and profit declines.

This pattern of short term gains is supported by a recent study by Mitchell & Co, a US consultancy, which found that organisations which restructured made share price gains within the first six months, but after three years lagged the rest of the market.

These statistics suggest that managers have succeeded in creating anorexic organisations rather than lean ones; organisations preoccupied with staff size and addicted to constant reductions. The symptoms of this corporate anorexia are low morale, overworked employees, and most importantly, loss of innovative edge.

In a special report on the changing structure of the workplace published in October 1994, International Businessweek warned that the great risk of downsizing is that it does little to change the way work is done and simply results in fewer people working harder. The experience of one middle manager at a high-tech company was widespread. He recounted,

"This year, I had to downsize my area by 25%. Nothing changed in terms of the workload. It's very emotionally draining. I find myself not wanting to go in to work, because I'm going to have to push people to do more, and I look at their eyes and they're sinking into the back of their heads. But they're not going to complain, because they don't want to be the next 25%."

While overwork and employee burnout sow the seeds for an eventual productivity slide, a more insidious immediate impact of downsizing is the loss of innovative capability. According to researchers Deborah Dougherty of McGill University in Montreal and Edward Bowman from the University of Pennsylvania's Wharton School, downsized firms lose the ability to carry out what they call "strategic linking". This is the key final stage in the process of successfully bringing a new product to the market which involves integrating it into the company's existing corporate strategy and organisational structure.

Downsizing, according to Dougherty and Bowman, interferes with the network of informal relationships which innovators use to gain support and essential resources to progress new product development. Innovative activities no longer 'connect' with the rest of the firm. The result is that new products do not get to market and opportunities to gain market share and improve margins are lost.

They do not rule out downsizing as an option, but recommend that a company attempts to keep its innovative edge by first mapping its internal entrepreneurial network and keeping as many of its strands intact as possible. This means gaining a better understanding of internal operating structures and using more sophisticated methods to track individual roles, responsibilities, and their relationships within the organisation.

Management should also create new connections between innovators and the rest of the company and, most important of all, make innovation an explicit part of its development strategy. The 3M Company is a shining example of this approach. It is committed to earning 30% of its revenue from products brought to market within the prior four years. It supports this with a policy which allows employees to spend 15% of their time pursuing ideas which they think have potential, regardless of corporate directives. And 3M's attitude to downsizing? Its policy is to find similar jobs for excess workers in other divisions. Over the past decade, it has reassigned 3500 workers in this way rather than make them redundant.

24/11/1995

References

•"Unthinking Shrinking" The Economist September 9, 1995 •"The new world of work" International BusinessWeek October 17, 1994 •"When layoffs alone don't turn the tide" International BusinessWeek December 7, 1992

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This is one of a series of articles written by Phil Cohen and Onno van Ewyk, HCi . Most of the articles were also published in the Australian Financial Review. This article may be reproduced only with the permission of HCi Consulting (email HCi ). Copyright HCi, 1993-1998.