April 1, 2009

Cut, cut, cut won't work

Management gurus warn that wholesale job reductions can cause more problems than they solve.

By Mark B. Solomon

The exhibit floor at the 2009 ProMat conference and exposition was filled with equipment and technology that promised to automate processes and cut labor costs all in the name of efficiency. Yet at the same time those purveyors were strutting their collective stuff, several management gurus were cautioning attendees to be judicious in reducing head count, warning that indiscriminate job reductions will cause more problems than they solve.

One of them, Jim Tompkins, head of Raleigh, N.C.-based consultancy Tompkins Associates, said that while it's often essential for companies to reduce capital and operating expenses, they should be careful not to lay off experienced workers needed to maintain cost-effective operations. Too many companies blindly cut costs without weighing the impact of their actions on long-term strategic directions, Tompkins said. "Lots of companies cut, cut, cut. That's an action, not a strategy," he said. "You have to have a strategy first."

The consultant also took a hard line on labor force reductions aimed at meeting return on investment (ROI) metrics. ROI assumptions are nothing more than flawed predictions that are especially vulnerable to error in a weak, uncertain economy, Tompkins said.

More articles by Mark B. Solomon

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