Wednesday, December 10, 2008

Retrenchments, pay cuts & knowledge workers

Let us assume that 2009 is not that rosy. Let us also assume that some employers may have a need to trim costs or, Heaven forbid, slash costs due to pressures of declining sales turnover.

One of the largest cost items in any organisation's profit and loss statement is labour or staff cost.

There are only 2 ways to deal with labour cost. One way is to institute retrenchment. Some employers use the unsavoury method of putting extra pressure on staff to force them to leave.

Another way, more enlightened, is to institute pay cuts.

The management guru Peter Drucker suggested that cost-cutting should be a routine exercise. It shouldn't be something that management does only during downturns. Drucker said, Businesses that actually succeed in cutting costs don't wait until they have to cut costs.

While watching costs and bottom-lines employers need to be more enlightened not just in the best of times but, even in the worst of times.

Investing in Knowledge Workers
Investing in productive assets should be a regular, everyday function. A modern organisation's greatest asset has to be its knowledge workers. It's human resource. It's human capital.

Rick Watrzman of the Drucker Institute gave the example of K.H. Moon, the former chief executive of Korean consumer-products maker Yuhan-Kimberly.

It was during the late 1990s, amid the Asian financial contagion, that Moon looked around and was disgusted by what he saw, that at almost all companies, the management just followed the old wisdom—massive layoffs.

Yet Moon felt that simply to slash employment was irresponsible, and he began to persuade his colleagues that there was a better way to go—not just to survive but to grow and prosper. He felt that it wasn't the correct time to lose jobs but to build capability, personally and companywide.

To get there, Moon took several bold steps. One was to accelerate a push to a new staffing system, moving from a three-crew, three-shift arrangement to a four-crew, two-shift model. By spreading out the work this way—Moon has likened it to job sharing in Western countries. The company figured it has been able to employ 25% more mill workers than it otherwise would have.
Lifelong Learning
Because of this setup, employees work fewer hours overall. But they're encouraged not to be idle.

Yuhan-Kimberly pays for them to attend classes so they can improve their technical acumen as well as increase their general knowledge. It's all based on a philosophy of lifelong learning which was regarded as the company's true source of competitiveness and sustainable growth.

This counterintuitive approach to dealing with human resources has much to commend it.

The upshot is that by providing a healthier work-life balance, by giving the rank-and-file the opportunity to enhance their skills continually, and by taking other steps to create a self-directed team culture, Yuhan-Kimberly has seen job satisfaction among its 1,700 employees soar.

So has productivity (along with market share and revenue)—so much so that workers' wages have also risen substantially.

This formula won't work for everyone; implementing it involves real costs and, thus, real risks. What's more, there's no avoiding the fact that layoffs are inevitable during a recession, no matter what is tried.

Even Drucker, who so admired Japanese industry for its commitment to lifetime employment, recognized this ideal was bound to crack amid the unrelenting pressures of globalization.

But what Yuhan-Kimberly reminds us is that shedding thousands of positions doesn't necessarily have to be management's automatic response to a bleak economy. When things seem darkest, it's time to innovate, not just eliminate.

Think about it.


Patricia said...

Hey CT,

I hope that some at least will do as you suggest here. Nothing is gained by slashing jobs across the board.

During the last recession - omg, this is my second? how old am I??! - my husband's company kept all their staff, but everyone took a 15% paycut. Even those newly employed.

I think having a job, versus losing your job and thinking you're never gonna get re-employed, is a big deal. It offers hope, where there seems none.

I know this is nothing new, but it would seem that so few know, or care to know about it.


walla said...

I shall only remember this life as one of inconsequential calm between extended sessions of tumultuous recessions barely made tolerable by interesting women.

With that reminiscence out of the way, it remains to add that Drucker had also spoken on cost-cutting:

He suggested cutting out entire operations, rather than retrenching staff.

Downturns are in fact a good opportunity to detox a company. Too much fat and hype cause bloated operations. Time to trim. Would the public sector show the way?

Downturns affect our human capital. Curiously, two other capitals can help reduce their effects. Social capital glue hard-up people together and help one another tide over the difficult period. And reputational capital can be credited if one has been conscientious in maintaining good form and values (cough).

I wonder how those who sell mutual funds, insurance, direct marketing products and real estate are going to survive next year.

No matter what is said, i am still for a ten percent knockdown on both personal and corporate taxes. It's going to be the urban middle-class which are going to suffer the most because they have the most to lose, especially if tied to loans they can't service. Just imagine, if the car or house gets repossessed, and one has to dig into the children's education savings, what a horrid life it will be, especially in the type of situation we have been seeing here for ages.

Cut the taxes, leanify the govt depts, and press forward the rationale that the public sector will have to pull up its socks on corruption - esp. the politicians in the way they let leakages mess up everything - and perhaps, just maybe, we can just come out stronger to pull through the NEXT recession.

Someone concluded that Peninsular is ALREADY a net energy importer. That's 3 years ahead of Petronas' estimate. If the reading is correct, we are also running out of natural gas.

Faced with this inevitability, we may collectively conclude the fifty year honeymoon is permanently over. What have we to show for it? I dunno, do ya?

Education may be the only card we have. But people are still playing politics.

I pity the young for the legacy they are about to get from the bunch of loonies in our political arena.

We had everything going for us. A good language, a multiracial community, lightened shoulders, best minds in the commonwealth, high standards.

Those are piped memories now.

More should gravitate to this blog and start writing better ideas. I just hyperventilate from time to time. Patricia, thanks for your womanly understanding too.