Lose key employees
In the past blog, I stated that in this global financial crisis, if software companies reduced costs by laid-off employees then it is possible that they may lose key employees with significant knowledge and skills and may not be able to rebuild its capability when the economy improves. I have received several responses from senior managers who told me that they did not agree with my statement because the cost of keeping people could be a big financial burden so letting people go is a better solution. Some managers told me that “Employees are disposable things and they can be hired at any time as economy improves”.
Of course, they have their opinions and I have mine. My view is based on many years of management experiences and as a researcher who study the software industry. Let me share with you some facts because there are lessons to be learned.
During the “Dotcom” crisis in 2001, over 80% company could not recover when the market improves because their key people had left to other companies. This is actually the result of brilliant strategy to use the crisis as a golden opportunity to “Steal” key people from competitors. During that time, both Microsoft and IBM were hiring a lot of people from Sun, Motorola, and other competitors and consolidate their positions. Basically, well-managed companies always maintain their competition by using every opportunity to leverage for their advantages. When things slow down, they focus on retraining their people so they could improve performance by having the most current skills and knowledge for better opportunity when thing improves. These activities are not only important to maintaining employee morale but they also give people the skills necessary to do efficient works for the company advantages.
In the “Dotcom” crisis in 2001, IBM continued offering additional trainings to its people to keep them current in technology. To reduce costs IBM replacing external teachers from universities that they hired to teach with company’s senior managers. This brilliant approach not only reduced the cost of training but also getting the involvement of senior leaders more closely to its people and improves their morale which affects company’s performance. When economy improves, IBM continues to remain as the top companies when many of its competitors drop down to much lower levels.
During the Dot.com crisis, Cisco Systems focused its effort to redesigned its products and consolidate its manufactures resulting in much improved products later. This strategy kept the company at the top level when many of its competitors either went out of business or become so weak with the same products and could not compete with Cisco’s new products. Today Cisco’s strategy by focus on redesigning products and retaining workers is taught at many business schools MBA programs as the key model to stay competitive.
As a professor who teaches both MIS and MBA programs, I always caution companies that before letting people go, they should spent time identify key employees and make clear to them about the importance of having them to stay. Companies have strong leadership will make good decisions about their people and companies that consider “people are disposable” will not last long in this highly competitive market. Today in this knowledge society, skill is so important because it takes time to build the skill needed for the business.
Good managers know which skill will help the business today and which will bring more value in the future so they can act accordingly. For example, that today proprietary software such as Microsoft, Oracle, and SAP may be important but it is possible that in a near future, open source and “software as a service” (SaaS) ay be the high demand software. Good managers always look at which types of skills would take years to replace or develop and be careful about their decisions. For example skills in programming or testing may be replaced relatively easier than skills in software engineering or system management who require business knowledge and experiences. Senior manager must understand the key strategic advantages of knowledge and skills and minimize the negative impact of laying-off, cost cutting, and identify highly talented people that the company should retain. Good company understands that maintain a strong workforce is the best asset in this global market, and it is difficult to maintain strength once the asset has been damaged.
Let me give you an example when I conducted research at Cisco in 2001. At that time the market is down significantly due to the Dot.com crisis. Cisco came up with a brilliant strategy by launched a program that instead of laid-off, company paid one-third of salary, plus benefits to these employees who agreed to work for local charity organizations. Steps like this help Cisco reduced costs but still protected Cisco by making employees feel better about Cisco’s commitment to its people. The results were measurable: employee satisfaction remained high, and Cisco retained a prominent spot on Fortune magazine’s “Best Companies to Work For” list. After the crisis, most of these employees return to fulltime position and Cisco were able to keep most of its assets (knowledge and skills) intact where many of its competitors lost their highly skilled people and could not recover.
I hope these lessons will help manager to understand “best practices” in the industry and avoid making costly mistake. People with skills and knowledge are highly valuable in this knowledge society and should never be treated as “Disposable”. Companies who have that kind of attitude toward people will never succeed because they do not know anything about today business.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
