What recession reveals about macho management’s real attitudes to people
The saying, “People are our greatest asset” has to be one of the commonest lies in management, like those other famous organizational lies, “Our check is in the post,” “I always put the good of the business first” and “I’m from head office and I’m here to help you.”
When times are tough and your organization is in trouble, would your immediate reaction be to throw away a significant part of ‘your greatest asset’? Yet, if people really are an important asset, that’s what laying off thousand of employees means.
It’s clear that the real attitude to employees in a good many large organizations is that they are an unpleasant and inconvenient cost, to be minimized or removed wherever possible. The asset statement is just PR. When times are bad, conventional macho leaders cut costs in a knee-jerk reaction to protect the bottom line. People are costs, so people must go. It’s a simple as that.
The truth about outsourcing
This is probably why so many organizations jumped on the idea of outsourcing, either by shifting jobs overseas, contracting out the work to overseas companies with access to cheaper labor, or using contractors and consultants in place of actual employees. If you have to use people in your business, find the cheapest ones available and use them. That was the idea behind the now infamous sacking of the most experienced (and expensive) sales staff at Circuit City in favor of young people who could be employed for far less. Look where that got the company. They’re bankrupt less than 12 months later.
We’re told that we live in the decades of the ‘knowledge worker’: the person whose contribution is made in understanding, experience and ability to innovate. In the past, employees were often referred to as ‘hands’ because that was what you hired: their physical labor. That all changed as machines took over the physical work and rooms full of clerks were replaced by computers.
But did it? If knowledge is what you paid for, how can one person be the same as another? They don’t have equal amounts of knowledge and experience—especially if the one you just laid off has years of service in your company and industry, and the one you’ll be using via outsourcing is fresh from college in another country and culture. What such companies seem to focus on most is how much the current person costs compared to the outsourced worker. Never mind the quality, look at the price.
The true costs of many lay-offs
Losing market share is typically a sign of one of three things: your product costs too much, your quality is too low, or your offering is out-of-date. Lay-offs address only one of these.
Only the first can be effected by removing employees—and then only for a short time. Having costs that are too high is more often a sign of an inadequate business model, poor manufacturing strategies and poor product design. Simply sacking employees does nothing to address any of these. It gives your bottom line a short-term boost at the cost of long-term problems.
In fact, sacking people almost always makes the other causes of falling market share worse. Quality goes down as the remaining people try to handle more work. Morale falls (which always lowers quality, whether in manufacturing, sales or service); people resort to cutting corners; outsourced manufacturing or service runs into problems when foreign suppliers turn out to have poor quality records, cheat by using inferior materials (like lead in toy paint), or themselves try to cut costs by employing too few people or those without the language skills or knowledge to do a good job (like many customer-service contractors overseas).
Innovation—the only sure source of future growth and success—is hurt most of all. R&D is a ‘soft target’ for budget cuts. Overworked and over-stressed people have neither the time nor the energy to think in innovative ways. Disaffected people keep their ideas to themselves. How else can we explain how General Motors, once the world’s largest motor manufacturer, managed to fall so far behind much smaller competitors in new product innovation? Toyota has sold the hybrid Prius for nearly 10 years. GM, maker (then killer) of the world’s first production electric car, won’t have a rival until 2010 (if it survives that long).
Our society’s corporate curse: MBA (Management By Accountants)
For decades, accountants and other bean counters have imposed their dismal viewpoint on businesses of all kinds. From an accounting perspective, anything you have to pay for and can’t sell is a pure cost. Machines and buildings are assets because they could be sold (albeit often at a huge loss). People are a cost because they have no re-sale value. In accounting terms, slaves would be assets and free employees costs to be minimized.
Yet business isn’t just about accounting rules (though a cursory glance at the business pages of most newspapers would make you think it is). How you account for money and resources on paper is purely theoretical and conventional. It doesn’t reflect the true nature of what is going on; it’s always behind, because you can’t account for anything until it’s past and done; and it’s ‘rules’ are just that—rules made by people to categorize things consistently, not laws governing the universe.
For many years, I was the head of an international consulting firm ultimately owned by an accounting group. I saw the accounting mind at close quarters. The experience convinced me that the vast bulk of accountants had little or no business acumen. These people happily advised companies on their business decisions, yet couldn’t run their own firm effectively. They understood how to account for money, not how to use it to build value.
Isn’t it time to bring back real business ideas: ideas about making things people want and value, providing services they wish to buy and use, and creating new sources of value and prosperity based on innovation and discovery? Those are the entrepreneurial attitudes that made the US into an economic giant. Decades of believing the dreary moaning of accountants and financiers look set to reduce it to an economic pygmy again.
Technorati Tags: cutting costs, using people properly, people as an asset, using employees wisely, good employment practices, creating value
December 17th, 2008 at 7:14 am
Your article should be sent out to every company to open their eyes!
Even if it is a company with less room for innovation (let’s say a carpenter for instance) they should at least focus on providing value for money – to provide a good quality and a good service.
In the software market everybody goes OpenSource – giving the software away for free but then charge for the service. However, the service is what then often lacks.
December 17th, 2008 at 7:18 am
@Martin Wildam: Thanks for the comment. I’m glad you liked the article. Keep reading, my friend.
December 17th, 2008 at 7:21 am
“People are our greatest asset” is a catch phrase but as mentioned the accountants have taken over (since the mid 70’s) and in acuallity employees are considered liabilities! Or in other words, we have been moved from one side (plus) of the accounting colomn to the other (minus) in the equation.
I love it when our ‘big boss’ struts around like a peacock and states that “It’s all about the people (employees).” What a lie!!! (And that is one of the reasons why us employees want to bail out!)
December 17th, 2008 at 8:07 am
@CK: Yes, I’m afraid that verbal hypocrisy is rampant amongst certain kinds of manager. I also think we have lost sight of the idea that the real purpose of a nation’s economy is to allow its people to live productive and reasonably comfortable lives, not to enrich a few at the expense of everyone else. Keep reading, my friend.
December 17th, 2008 at 3:32 pm
I have written about your post at http://1-2-solved.blogspot.com/2008/12/economy-forecast.html
December 17th, 2008 at 3:57 pm
@Martin Wildam: Thanks, both for the link and the article. Makes good reading. Keep reading, my friend.
December 17th, 2008 at 9:29 pm
Excellent article reiterating an important fact.
Despite the progress made in understanding, developing and valuing the human side of any business enterprise, the corporate world has been essentially driven by archaic accounting views. While a plethora of recent books by management gurus focus on innovation and knowledge management, most folk at the top rungs of large corporations consider these topics as touchy-feely and nice-to-do-during-good-times.
A Dr. G said long ago that good leaders should stop calling employees as “assets” because all assets recognized in the financial statements tend to depreciate in value and are meant only to be exploited for profit.
Perhaps the concept of human capital accounting needs to become mainstream in order to dislodge the old paradigms. Though the word “liability” seems inappropriate, the liability side of the balance sheet shows shareholders’ equity and retained earnings, things that have connotations more aligned with what people bring to an organization. As mentioned by you, knowledge and experience adds to the cumulative capability of the enterprise. Management must also view it as their responsibility to provide returns on the time and effort invested by employees towards the business objectives.
A few interesting quotes that suggest variations of the cliche (”people are our greatest asset”) can be found at
http://itftd.blogspot.com/2008/07/i-tftd-138.html
December 18th, 2008 at 4:59 am
Carmine
You are bang on in what you say! However, I would question whether the statement “our people are our greatest asset” is a deliberate lie or just hypocrisy. I think most of the people who say it actually believe it at some level, but they are caught up in world that doesn’t.
The nub of the problem is that since the start of the industrial revolution people have been recorded (accounted for) solely as a cost, and even in an acknowledged knowledge-based economy that tradition persists. Thus the outsourcing: an attempt to cut costs, with no recognition of the investment already made in the people being discarded. Thus as soon as the economy stalls or performance deteriorates there is an habitual, reflex knee-jerk reaction that calls for cost cutting and we have the glut of layoffs (1.2 million in the past 3 months in the US alone!) that we are currently witnessing, all compounding the situation and making it worse.
The solution is thus obvious: start valuing people as assets and change the mindset and hence the behaviour that follows. Simple. Even better, I have developed a simple and effective way to do just this. Yet for 3 years when I first started pitching this people looked at me as if I was some sort of naive idealist (or even worse: “a communist!”) Lately, however, I have found that there is real interest in the proposition. Unfortunately that interest vanishes when I admit that I am still looking for a proof of concept client to pioneer it. Hopefully, though, it is just a matter of time, and then I can really start to change the world!
Of course I am trying to accelerate things and shorten that time frame, and I am using precisely the message of this blog to achieve that. If you or your readers are interested in learning more they can go to my new website http://www.alternativestoredundancy.com and download my free paper on this subject. It gives 5 reasons why redundancy is self-defeating and serves as an introduction to a further platform that outlines an effective alternative.
December 18th, 2008 at 6:52 am
@RG: Thanks for a great comment and link. I’m afraid that many companies don’t use accounting procedures to help control their business: they allow those procedures to determine the business itself (and the executives’ thinking)—a clear case of the tail wagging the dog. Keep reading, my friend.
December 18th, 2008 at 7:02 am
@Bay Jordan: Thanks for a very useful comment and link. I think our current crisis situation proves clearly that events, people (and ‘assets’) take on the reality that our thinking and opinions give to them.
Accounting principles are simply human inventions that impose a particular perspective on the world; one that is as likely to be wrong as right, given normal human fallibility. Sadly, over the years, we have come to treat this particular perspective as ‘truth’ and then use it to impose meaning on the world—including many aspects that have nothing to do with categorizing past patterns of expenditure and receipts (the only actual purpose for accounting).
If you see things through distorting lenses, what you see—and the sense you make of it—will be equally distorted. The only way out, in my view, is to spend some time questioning our old-fashioned and naive assumptions about the place of people in an enterprise and the use of accounting principles to understand how business works.
You (and those of our readers interested in a complementary viewpoint from economics) might like to check out http://freekvermeulen.blogspot.com/2008/12/in-downturn-manage-your-revenues-not.html.
Keep reading, my friend.
December 19th, 2008 at 1:31 pm
When I was putting together my free white paper on “Managing Headcount in a Downturn (http://www.threestarleadership.com/downturn.htm) I studied companies who have concentrated on maintaining an intact workforce during downturns. They include SC Johnson, Toyota, Nucor, and Lincoln Electric. What’s interesting is that they way these companies treat their workers in a downturn is just a variation on the way they treat them in good times. They value their people and their teams and so in good times and bad they work to keep them together and productive.
Many other companies talk the talk about how much they value their people, but as you so rightly note, that rhetoric gets tossed in the dustbin when hard times come. Then the accountants rule and the company leadership whines about how “they have no choice.”
December 19th, 2008 at 2:52 pm
@Wally Bock: I couldn’t agree more. There are companies out there—large and successful ones too—who have already seen past the prevailing myths about corporate downsizing. Sadly, too many are stuck in the old, tired ruts of macho management and conventional thinking. Keep reading, my friend.