strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


How to Stop Bad Things from Happening to Good Companies

6) Invest in functions critical to the future to energize the organization. Increase total human resources (number and talent level) in those functions.

7) Acquire new skill sets essential to customer-defined future needs.

Exhibit XII 

Need/Ability to Move

Excessive employment growth is a pernicious cause of calcification and must be vigorously fought. At a minimum, increase employment no faster than the lesser of profit or sales growth rates in real terms, not counting unusual growth in sales or profits because of a banner year or extraordinary accounting changes. It is best to measure sales and profit growth rates as conservatively as possible. Benchmark the numbers for sales and profit per employee against the leanest similar company, which may or may not be a competitor.

Managing the quality of employees is as important, if not more so, as managing their number. Lifetime guaranteed employment is directly at odds with sustainable employment levels and maintaining a competitively strong organization. I.B.M.'s impossible-to-implement guaranteed employment has not been a guarantee to those fired in droves in the early 1990's.

Guaranteed employment is unjust to the individual employee who is not performing well, but who may perform well elsewhere. It is unjust to the employee's co-workers, too. They not only must carry that person's load, but they are also vulnerable when value migrates and the company is forced to jettison the wheat and the chaff simultaneously. And ultimately, keeping on people who are more loyal than competent is unjust to the organization, for they are less able to see the truth and less willing to share it with you.

Do not let "affordability" lower performance standards at any level. The Microsoft Corporation has shown the power of such an approach. Its disciplined policy of pruning the bottom 5 percent of its work force every six months insures that all employees are carrying their full load. Such a continuous improvement program is much more fair and humane than the wholesale firings that invariably occur when constant internal vigilance is not asserted.

The only way to insure that employees are held to high performance standards even when life at the company is relatively stable is by having a complete performance-oriented system. Strong, fair, clear and candid performance appraisal and feedback are critical to avoiding calcification. Pay-for-performance is an important part of this system because it provides a strong backbone for making hard decisions.

The outplacement system must be as good as the recruiting system. It should systematically support employees in their effort to find a position that takes maximum advantage of their skills, and should provide a reasonable chance for financial security. Almost any severance package is cheaper in the long run than keeping poorly performing workers.

The number and quality of employees are important, but more must be considered. The relationship of employees to their employer and the nature of the employees must also be managed. By "nature," we mean type of work, experience and thought process.

Every organization needs some staff people to support the line people, who actually sell, service and produce, but having too many definitely contributes to calcification. Staff growth should be below the lesser of profit, sales or line employment growth. Like total employment, it should be benchmarked against the leanest similar company. Requests for additional staff hiring should be subject to more stringent controls and treated more cautiously than requests for line hires.

Hiring at all levels should include managers from other industries to encourage open-thinking systems. The board of directors should likewise comprise strong-willed people with an eclectic portfolio of skill, experience and outlook. Such a hiring approach combined with pruning based on performance not only maximizes employee capability, it helps to insure that the average age of the work force remains relatively constant. Firing only older employees is illegal in the United States, and inhumane. Pruning and the right kind of hiring at all levels insure a more balanced, flexible, change-responsive work force.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.