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.
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.