Sunday, November 13, 2011

Lessons from Procter & Gamble – Downsizing, Rightsizing, RIFs

Most companies have been faced with the need to cut costs over the past several years and many people and jobs have been eliminated from the workforce. You will note that we have the highest level of unemployment as one of the impacts. The personnel reductions have come under the heading of downsizing, rightsizing or just reductions in force (RIFs). The net result in addition to lower costs is a substantial change in the way that companies have to operate.

At the same time, technology has made tremendous progress and we now have available significant capabilities that never existed before. The idea has been that companies can do much more with much less. Believe it or not, when the first computers were being introduced, there was an expectation that the work week would shrink to less than a day a week. Computers would do the rest. You know personally from your now extended work weeks that this was not the case and was, at best, a wild dream. And yet companies expected that technology could overcome the impact of the lost personnel.

Procter & Gamble is no exception. In 1993, well before this became common practice, P&G undertook a worldwide cut back in personnel under the heading of strengthening global effectiveness. SGE was designed to streamline work processes, drive out non value-added costs, eliminate duplication and speed productivity through a leaner organization. Initially, it was directed at the manufacturing operations but the idea quickly spread to the rest of the company. Up to 10,000 people/jobs were eliminated. The objective, just as it has been the objective of most companies, was same or greater productivity with less cost.

Unfortunately, that hasn’t happened. It didn’t happen at P&G and it isn’t happening with many other companies. Certainly, some aspects worked as expected. But in many cases, the people and jobs were eliminated, yet the work required remained.

This did produce a short term profit bump after the reorganization costs were passed through as a “one time hit” to earnings. However, as Stephen Covey outlined in his book the 7 Habits of Effective People, the golden goose was maimed if not killed outright. The reductions in force often targeted the higher salaried, longer term employees. Companies lost years of very valuable experience and expertise. As a result many companies faced substantial redesign, slower process, business and profit losses.

What made it worse for many companies is that the personnel reductions came on a “chain saw” basis and not a “surgical” basis. This means that cuts were made across the board. The result was reductions in one department greatly affected what was left in other departments or functions, to the detriment of the business. This has led to renewed needs for reorganizations and then further rightsizing. In fact, that is exactly what has happened at Procter. They have had several full company reorganization plans. They have offered several waves of early retirement and outplacement packages to employees around the globe.

What’s the lesson? Clearly it is taking the long view. It is an in depth understanding of what is really required to operate profitably and then providing the technology and human resources required to deliver the objectives. Short term solutions just don’t work. Second, it means focus. It means being choiceful on what activities are really required to operate profitably and to achieve the corporate goals. Other activities that are just nice to do, have to be eliminated. Finally, it is deciding on what data is required to operate. Most companies are buried under an overload of information. Layers of the organization are employed to develop the data, analyze it and interpret it and then try to find meaningful actionable conclusions. The loss of the experience and expertise caused by the cuts has led to much of this wheel spinning over-analysis.

If your company is experiencing “sludge” in your operations and slower speed to market, you might consider relooking at some of the experience that was cut out in the rightsizing. Interestingly, many companies are hiring back ex-employees as consultants at a higher cost to do the same job that they originally did.

Since we have had experience both at Procter & Gamble with SGE and similar programs at other companies, we can help you. Just contact us.



John Maver
Maver Management Group
(925) 648-7561
Maver Management
View John Maver's profile on LinkedIn

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