ARTICLES
& REPORTS
Organizational Innovation
About
Innovation Network
- O r g a n i z a t i o n a l _ I n n o v a t i o n -
Joyce Wycoff
It's a common tale: A company experiences a slow down and profits dwindle. Management acts swiftly, implementing a 10% cut in personnel. Costs go down; profits rise; stockholders are happy; management gets a pat on the back ... and big bonuses.
However, employees are unhappy ... worried about their jobs ... uncertain about the future of the company ... resentful of management's bonuses at their expense. Service suffers; customers are unhappy; sales go down; profits plummet; and management goes into emergency meetings.
Another round of downsizing is planned and implemented. Again, costs go down and profits go up; stockholders are delighted; more pats on the back; more bonuses.
But ... employees are more unhappy and more vocal; institutional knowledge is lost; the network of innovation is broken; the flow of new products and services is stemmed; service is disrupted. Customers begin to flock to the competition; sales are lost; profits become losses. Stockholders jump ship for a hot new issue (started by a downsized employee?); the board fires the CEO and hires a turnaround expert ... someone who can "slash and burn" the company's way back to profitability.
It's not a pretty story but it is predictable.
The eminent psychologist, Abraham Maslow, stated that, to a man with a hammer in his hand, every problem looked like a nail. In the past few decades, management discovered a new hammer and, seeing every problem as a nail, learned to use the hammer well and often. The hammer is downsizing and using it with power and skill has become the universal test of management-hood. Refusing to use it is an admission of weakness, a flirtation with corporate malfeasance, a warning signal to stockholders.
But, most of the studies of the effects of downsizing in recent years have shown remarkably similar results ... most downsized organizations fail to meet their profit objectives and more than half fail to improve productivity or profits. Downsizing obviously adversely impacts employee morale, however, it also interferes with the web of informal relationships that innovators use to win support and resources for new products and services. Downsizing breaks the entrepreneurial network. This is one explanation for why some downsized companies perform well in the immediate wake of a downsizing but then run into difficulties later.
Maybe it's time to learn a new tool? Maybe instead of trying to keep a fickle set of stockholders happy by massaging the bottomline every quarter, we should focus more on keeping customers happy through innovation ... innovation that leads to better value, new products, new services, and new ways of delivering those products and services.
However, there's only one source of innovation ... people ... notably the employees who just got downsized and are currently out being innovative for the competition or are setting up their own innovative new firms or whose talents are being wasted in the sea of underemployment.
Rubbermaid is a prime example of a company that has chosen the innovation approach rather than using the downsizing hammer. Widely recognized for their innovativeness, Rubbermaid introduced over 400 new products in 1994 ... more than one a day and 9 out of 10 of their new products are considered a commercial success. Wolfgang Schmitt, Rubber- maid's CEO, sees little benefit in downsizing, stating, "It doesn't take a mental giant to lay off 5,000 people. I think great management is about avoiding the need for that kind of wholesale dismemberment of your people."
And, Mark Willis, the new CEO of the Times Mirror Corporation, a company that has significantly cut back its staff through downsizing, states, "We've done what we can through downsizing and now we have to grow through innovation."
Let's hope these CEOs represent a permanent shift in thinking.
For more information about the Innovation Network, call 805-965-8477 or E-mail 73751.3361@compuserve.com or staff@thinksmart.com