Human Resources Q & A
By Tim Rutledge
November 9, 2009
The question:
Last month you wrote that employers tended to lay employees off earlier in the recession rather than later. I guess I'm surprised that you find this noteworthy. Doesn't it make sense that if you need to realize large cost savings you cut where the large expenditures are? There's not much use in trimming around the edges if you need to reduce costs in a big way. For most organizations, their biggest cost is payroll - people. So it's just logical that that's where the cuts came first.
Tim's Response:
I read you loud and clear. There's no denying the logic about reducing costs. It's entirely correct to say that if you need to cut big, you have to target your big expenditures. Reducing small expenditures simply can't yield large cost savings.
This logic holds true, however, only when the situation is viewed through the lens of the accountant's paradigm. (Please forgive me if I use the word "paradigm" a lot in this Q & A. It's just shorthand for "a way of looking at things.") To accountants, employees are costs; that's how they show up on the income statement and in budget forecasts. But there's a different paradigm that needs to be consulted as well: the organizational development (OD) paradigm.
As seen through the OD lens, employees are not costs but rather assets. The job of the organization, through its managers, is to manage the assets in such a way as to maximize the return on the investment (ROI) in the assets. That's what every investment manager does: promote the growth of the assets while protecting against the risks that they won't grow. (I'm not claiming that one paradigm is superior to the other. I'm just saying that both need to be consulted.)
Divesting assets vs. cutting costs
My point last month was that at the start of this recession employers tended to use the accountant's paradigm and reduce costs by laying people off. The extent to which this happened is only now coming to light. According to the New York Times of October 4, 2009, the U.S. Bureau of Labor Statistics (the equivalent of Statistics Canada) adjusted its numbers of unemployed Americans. It turns out that they had under-reported the layoffs in the US at the beginning of the economic downturn. The earlier numbers were 4.8 million job losses in the 12 months leading to March 2008. The adjusted number of layoffs is 5.6 million, 824,000 more than previously reported.
If we're using the OD paradigm, organizations didn't cut costs, they divested. They shed assets and the growth that the assets had undergone.
Now, divestments happen in the accountant's world, too. But organizations generally hesitate to divest, because it means writing off investments of time, money, etc. If you cut a cost, you save money (or at least choose not to spend it). If you divest, you lose money.
Investments bring future gains
So how do organizations lose money when they lay people off?
They don't in the immediate term. It's down the road, when the economic recovery kicks in, that their lack of investment in people will leave them less able to take advantage of the various opportunities that the improving economy will throw their way. So they'll hire like crazy, bringing on board people in whose growth and productivity they've as yet made no investments, and ask them to perform at levels resembling those available only from people whose productivity reflects higher levels of investment. This will not happen. That's how organizations will lose money, or more accurately, find themselves unable to make as much money as they otherwise would.
For organizations not motivated by profit, the same dynamic applies. When managers train, give performance feedback or career guidance, assign special projects, coach, and recognize achievements, they are making investments in the future productivity of their employees.
Are you a cost or an asset?
It's by doing these people management things that managers act like investment managers.
As an employee, do you see yourself as a cost or an investment? When you look in the mirror, do you see a cost? Of course not; you see an asset that's capable of growth, of making a contribution. Costs don't grow. Costs are not productive. Costs are just costs.
I place the OD paradigm alongside the accountant's paradigm as an additional way of looking at things. When organizations are considering layoffs in order to reduce costs, they can then weigh that against the longer term impact of divesting assets. When they lay people off, they're both cutting and divesting. I believe that decisions made with both perspectives are better than decisions made from one perspective only.
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Tim Rutledge, Ph.D., is a veteran human resources consultant and publisher of Mattanie Press. You can contact
him at tim_rutledge@sympatico.ca or visit www.gettingengaged.ca.
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