Executives are much like a wealthy family that annually sells acreage . . . Until the plantation is gone, it’s all pleasure and no pain. In the end, however, the family will have traded the life of an owner for the life of a tenant farmer. – Warren Buffet, The Selling of America, Fortune Magazine 1988
If anything the past few decades have taught us is that companies the world wide have become slaves to investment companies. Hitting the numbers promised to Wall Street has become the defacto purpose of whole publicly-traded organizations. The dysfunction to hit these numbers is evident in moves to reduce staff or make other short-term cuts that will ultimately lead to a long-term increase in costs.
President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. (Photo credit: Wikipedia)
It is without doubt an unenviable position.
I have always felt cutting staff in any form is not an optimal solution. I have always felt the best route that shows leadership is to first cut out executive bonuses should go first and then across the board executive compensation cuts. The next thing to do across the board cuts in compensation. However, if cuts have to be made then the front-line staff (or those that create value) should be kept and all other positions should be cut. Front-line staff are the only ones that can create value for customers.
If an organization is mature enough in using the 95 Method, these are good strategies to deploy. Because to me, maturity has to be the depth that the thinking has permeated the organization (i.e., executives “get it”). Sometimes we are lucky enough to start in this position with organizations, other times we are not. Redesigning organizations can be construed as simple in comparison to changing thinking of executives.
No matter what when the numbers or the company is at risk, organizations either have to or feel compelled to act. The response predictably increases long-term and total costs. We have surrendered our companies to investment firms that drive for greater results, which in and of itself sounds OK until we get the type of actions that results in what Warren Buffett described and damage the organization.
There is a better way.
Dr. Perry Gluckman (Deming’s Profound Changes – DeLavigne) had a view on this:
“The Message is simple!
- Every system is broken.
- Being competitive in the market means improving the system faster than the competition.
- We are all part of the problem, and we are all part of the solution.”
Wall Street has driven us apart by class and by thinking. The bottom-line now prevails over what is right for the system in too many cases. Time to rethink our position.
Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public). His organization helps executives find a better way to make the work work. Read his articles at Quality Digest and his column for CustomermanagementIQ.com. Learn more about the The 95 Method for service organizations. Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.
Tripp, I agree with your view about where cuts have to start to preserve the enterprise; but given that the chief cutters are the ones first in line, it would be rare if this happened. I’d like to think that a strong board of directors would insist that this occur (with the amazing publicity it would give the first movers), but as they are often in the same ‘club’ as senior execs, its unlikely. But then, it would be a good exercise to track the long term market performance of the cutters versers the preservers in the market!
…and furthermore, the chief cutters are typically the cause of the problem: something that boards should be attentive to: not watching the market? not listening to the customer? not managing risks and exposures? all adds up to an enterprise that can slide into crisis and try to solve the problem while preserving management income by getting rid of the people management would have to use to actually solve the problem! But, of course, there’s a question as to how effective the board is doing its duty as well!