Simultaneous pressures to increase !exibility and employee skills create a vexing human resource dilemma. Should an organization seek adaptability (through a downsized, out- sourced, part-time workforce) or loyalty (through a long-term commitment to people)? Should it seek high skills (by hiring the best and training them well) or low costs (by hiring the cheapest and investing no more than necessary)?
Lean and Mean: More Bene!ts Than Costs? The advantages of a smaller, more !exible workforce seem compelling: lower costs, higher ef”ciency, and greater ability to respond to business !uctuations. After the recession in 2008, the U.S. economy shed roughly 5 million jobs (Coy, Conlin, and Herbst, 2010), albeit just a fraction of the some 50 million lost worldwide (Schwartz, 2009).
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Downsizing works best when new technology and smart management combine to enable fewer people to do more. In recent decades, manufacturing jobs have been shrinking around the globe because of changes in technology (Kenny, 2014). Yet even when it works, shedding staff risks trading short-term gains for long-term decay. “Chainsaw Al” Dunlap became a hero of the downsizing movement as chief executive of Scott Paper, where he more than doubled pro”ts and market value. His strategy? Cut people—half of management, half of research and development, and a “fth of blue-collar workers. Financial outcomes were impressive at “rst, but employee morale sank, and Scott lost market share in every major product line. Dunlap did not stay around long enough to “nd out if he had sacri”ced Scott’s future for short-term gains. After less than two years on the job, he sold the company to its biggest competitor and walked away with almost $100 million for his efforts (Byrne, 1996).
Despite eliminating millions of jobs, many “rms have found bene”ts elusive. Markels and Murray (1996) reported that downsizing often turned into “dumbsizing”: “Many “rms continue to make !awed decisions—hasty, across-the-board cuts—that come back to haunt, on the bottom line, in public relationships, in strained relationships with customers and suppliers, and in demoralized employees.” In shedding staff, “rms often found that they also sacri”ced knowledge, skill, innovation, and loyalty (Reichheld, 1993, 1996). Multiple studies have found that cutting people hurts more often than it helps performance (Cascio, Young, and Morris, 1997; Gertz and Baptista, 1995; Love and Kraatz, 2005; Mellahi and Wilkinson, 2006). Nevertheless, more than half of the companies in a 2003 survey admitted that they would make cuts that hurt in the long term if that’s what it took to meet short-term earnings targets (Berenson, 2004).
Downsizing and outsourcing often have a corrosive effect on employee motivation and commitment. A 2009 Conference Board survey found that “only 45% of workers surveyed were satis”ed with their jobs, the lowest in 22 years of polling” (Coy, Conlin, and Herbst, 2010, p. 1). Workers reported that the mood in the workplace was angrier and colleagues were more competitive, and a 2012 survey found employee loyalty at a seven-year low.
Investing in People Employers often fail to invest the time and resources necessary to develop a cadre of committed, talented employees. Precisely for that reason, a number of authors (including Cascio and Boudreau, 2008; Lawler, 1996; Lawler and Worley, 2006; Pfeffer, 1994, 1998, 2007; and Waterman, 1994) have made the case that a skilled and motivated workforce is a powerful source of competitive advantage. Consistent with core human resource
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assumptions, high-performing companies do a better job of understanding and responding to the needs of both employees and customers. As a result, they attract better people who are motivated to do a superior job.
The most successful company in the U.S. airline industry for many decades, Southwest Airlines, paid employees a competitive wage but had an enormous cost advantage because its highly committed workforce was so productive. Competitors tried to imitate Southwest’s approach but rarely succeeded because “the real difference is in the effort Southwest gets out of its people. That is very, very hard to duplicate” (Labich, 1994, p. 52).
Ewing Kauffman started a pharmaceutical business in a Kansas City basement that he grew into a multibillion-dollar company (Morgan, 1995). His approach was heavily in!uenced by his personal experiences as a young pharmaceutical salesman:
I worked on straight commission, receiving no salary, no expenses, no car, and no bene”ts in any way, shape, or form—just straight commission. By the end of the second year, my commission amounted to more than the president’s salary. He didn’t think that was right, so he cut my commission. By then I was Midwest sales manager and had other salesmen working for me under an arrangement whereby my commission was 3 percent of everything they sold. In spite of the cut in my commission, that year I still managed to make more than the president thought a salesmanager shouldmake. So this time he cut the territory, whichwas the same as taking away some of my income. I quit and started Marion Laboratories.
I based the company on a vision of what it would be. When we hired employees, they were referred to as “associates,” and they shared in the success of the company. Once again, the two principles that have guided my entire career, which were based on my experience working for that very “rst pharmaceutical company, are these: “Those who produce should share in the pro”ts,” and “Treat others as you would be treated” (Kauffman, 1996, p. 40).
Few managers in the 1950s shared Kauffman’s faith, and many are still skeptics. An urgent debate is under way about the future of the relationship between people and organizations. The battle of lean-and-mean versus invest-in-people continues. In pipe manufacturing, two of the dominant players are crosstown rivals in Birmingham, Alabama. One is McWane, which compiled an abysmal record on safety and environmental protection—9 deaths, 400 safety violations, and 450 environmental violations between 1995 and 2002 (Barstow and Bergman, 2003b) that “culminated in an $8 million “ne imposed in April 2009. Four former plant managers were sentenced to federal prison for
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what authorities said was wrongdoing at the plant, including the cover-up of evidence in the 2000 death of Alfred ‘Al”e’ Coxe in a forklift accident” (Salamone, 2016).
The other is American Cast Iron Pipe (Acipco), which was the “rst “rm in its industry to appear on Fortune’s list of the best places to work in America and was named one of Birmingham’s most admired companies in 2012. Barstow and Bergman write that “several statistical measures show how different Acipco is from McWane. At some McWane plants, turnover rates approach 100 percent a year. Acipco—with a work force of about 3,000, three-“fths the size of McWane—has annual turnover of less than half a percent; 10,000 people recently applied for 100 openings” (2003c, p. A15).
Which of these two competing visions works better? Financially, it is dif”cult to judge, because both companies are privately held. Both have achieved business success for roughly a century. But in January 2003, at the same time that Fortune was lauding Acipco for its progressive human resource practices, the New York Times and a television documentary pilloried McWane for its callous disregard of both people and the law. By 2012, a chastened McWane was describing itself as an industry leader in employee safety and offered data suggesting that safety problems in its plants had declined steadily.
CONCLUSION The human resource frame highlights the relationship between people and organizations. Organizations need people (for their energy, effort, and talent), and people need organiza- tions (for the many intrinsic and extrinsic rewards they offer), but their respective needs are not always well aligned. When the “t between people and organizations is poor, one or both suffer: individuals may feel neglected or oppressed, and organizations sputter because individuals withdraw their efforts or even work against organizational purposes. Con- versely, a good “t bene”ts both: individuals “nd meaningful and satisfying work, and organizations get the talent and energy they need to succeed.
Global competition, turbulence, and rapid change have heightened an enduring organizational dilemma: Is it better to be lean and mean or to invest in people? A variety of strategies to reduce the workforce—downsizing, outsourcing, use of temporary, part- time, or contract workers—have been widely applied to reduce costs and increase !exibility. But they risk a loss of talent and loyalty that leads to organizations that are mediocre, even if !exible. Emerging evidence suggests that downsizing has often produced disappointing results. Many highly successful organizations have gone in another direction: investing in people on the premise that a highly motivated and skilled workforce is a powerful competitive advantage.
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NOTES 1. Featherbedding is a colloquial term for giving people jobs that involve little or no work. This can
occur for a variety of reasons: union pressures, nepotism (employing family members), or “kicking someone upstairs” (moving an underperformer into a job with no signi”cant responsibilities).
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c h a p t e r 7
Improving Human Resource Management
Far and away the best prize that life offers is the chance to work hard at work worth doing.
—Theodore Roosevelt
Google, with more than 500 applicants for every job opening in recent years, is harder to get into than Harvard. In 2017 it was once again
number one on Fortune’s list of the best places to work (Fortune, 2017). Its king-of-the-Internet image helps, but the search giant knows it takes more to hire and retain the brainy, high-energy geeks who keep the place going and growing. As one Googler put it, “The company culture truly makes workers feel they’re valued and respected as a human being, not as a cog in a machine. The perks are phenomenal. From three prepared organic meals a day to unlimited snacks, artisan coffee and tea to free personal-!tness classes, health clinics, on-site oil changes, haircuts, spa truck, bike-repair truck, nap pods, free on-site laundry rooms, and subsidized wash and fold. The list is endless” (Fortune, 2016).
Few go as far as Google, but a growing number of enlightened companies are !nding their own ways to attract and develop human capital. They see talent and motivation as
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business essentials. That idea has taken a couple of centuries to gain traction, and many companies still don’t get it. They adhere to the old view that anything you give to employees siphons money from the bottom line—like having your pocket picked or your bank account drained.
