Human Capital, Downsizing, and Treating People Right

Posted on | April 26, 2007 | Comments Off on Human Capital, Downsizing, and Treating People Right

In an article titled "It’s the Workforce, Stupid!" in the April 30 issue of The New Yorker, James Surowiecki strategically dips into the issue of corporate downsizing.

In the article, he mentions the work of Wayne Cascio from the University of Colorado, Denver, that assessed the performance of 300+ firms who had executed significant layoffs in the 1980s, but whose financial performance and stock price had not demonstrated improvements 3 years later. This is noteworthy in light of the "seven percent rule," which holds that "when a company announces major layoffs, its stock price jumps seven percent."

Surowiecki contends that "The waves of layoffs that began at the end of the decade [1970s] and peaked after the recession of 1990-1991 were largely a response to crisis on the part of manufacturing companies swamped by foreign competitors and stuck with excess capacity. More recently, however, downsizing has become less a response to disaster than a default business strategy, part of an inexorable drive to cut costs … The problem is that too many companies today define workers solely in terms of how much they cost, rather than how much value they create."

Of course, part of the cost equation that is driving these behaviors in the U.S. are the result of our unique position among developed nations in tying health care coverage to employment, a subject I’ve covered in a recent Health Politics program.

And while I’m on the topic of "human capital," here’s some good advice from Bill Russell, formerly of the Boston Celtics, who knows a little bit about addressing adversity and balancing short-term gain and long-term performance. When it comes to interactions with colleagues, he recommends these words:

The 5 most important words:
“I am proud of you.”
The 4 most important words:
“What do you think?”
The 3 most important words:
“I appreciate that.”
The 2 most important words:
“Thank you.”
The most important word:
“You.”