Why is it that the first instrument many executives reach out for when sales start slowing down is the scalpel? They cut long-term employees, critical operational workers, shutter production facilities, tamp down on capital expenditure, reduce R&D to some arbitrary percentage of the dwindling sales, and stomp on other product innovation programs. They sell so-called non-core assets to focus on bread and butter operations, but starve even these critical investments to lower operating costs.
Then they wait for sales to start growing when general demand starts coming back across all sectors of the market and the economy. Something is sorely missing here. What products will the cost-cutting company feed into the market to fuel its growth and capture market share? Who will drive the sales, support after-sales service, invent new devices, and provide critical mid-level leadership? I was reminded of these questions when Nokia Corp. (NYSE: NOK) announced its latest job cuts, which in some ways mirrored what has been happening at rival mobile handset manufacturer BlackBerry (Nasdaq: RIMM; Toronto: RIM) as I pointed out in an earlier blog. (See: Nokia Job Cuts Don't & Won't Impress Anyone.)
I'll make this short. Cost-cutting does not ignite growth, no matter what any management guru has published. Unfortunately, in the electronics industry as well as in other manufacturing sectors, this seems to be the only strategy many executives would rather wield as a defensive weapon against loss of profitability. They've got it wrong. Instead of going on the defense, perhaps they should instead go on the offense. My favorite example in this regard is Intel Corp. (Nasdaq: INTC), the world's No. 1 semiconductor company by revenue and one of the most successful enterprises in the electronics industry.
Intel plays in a highly cyclical market, but the company has learned never to forget the ups when it is going through the down cycle. During periods of recessions, Intel typically jacks up capital expenditure and R&D and conducts minimal layoffs. The senior executives insist that the extra spending would allow them to burst out faster than the competition when the market starts to accelerate. Most of the time, they've been right, and that has helped them beat microprocessor rival Advanced Micro Devices Inc. (AMD) (NYSE: AMD) into a pulp. It's in fact a joke today to call AMD and Intel rivals. How could they be truly considered competitors when the revenue gap is as much as $45 billion -- in favor of Intel?
Yet investors regularly applaud the company that -- facing a stiff sales headwind -- simply announces employee attrition through layoffs, buyouts, and asset disposal. Years later, the same company is in the same muck but this time may lack the employee resources to climb out because the best workers have flown the coop. There's a time to retrench workers, but overused, this strategy will cut both ways and sometimes deeper than management would like. For an industry dependent on super brainy and extraordinarily talented people, I am beginning to think electronic equipment manufacturers and their suppliers might have followed investors down the wrong hole.
Jacob, You assume management objectives and what's best for the company are necessarily the same. Today, a CEO must show immediate results and may find it difficult to align longer-term goals with what shareholders want right now. Analysts measure corporate performance on a quarterly basis and this may not always be in line with what's best for the company.
A management team can decide to not cut jobs because they believe this will position the company in future for strong growth but they may pay dearly for this in market valuation and shareholder perception.
Tue Jacob but someone has to be responsible for the mistakes. People dont mak mistakes willingly but in a scenaio where its a huge concern to many the top management will have to answe for it. And if you consider the methodology of SUVIVAL OF THE FITTEST, I feel that the CIO's and CTOs will survive where as the smaller guys will perish.
Bolaji, I know certain companies are rearranging the staff fixation patterns during recession or business dull period for minimizing the lay off period. They won't shut down any department, but they rearrange/shuffle the staff across different departments. This will help the employees to build up a confidence in their employer that they won't be get sacked and more over this will help them to learn multiple skill across different departments.
Nimantha, CIO/executives are taking decisions based on the best analysis with the current data and statists. But in certain cases market or business may proves that their analysis and decisions are in wrong side. I don't think anybody may intentionally think to spoil or degrade the company. In such conditions"Survival for the fittest" is the motto.
Can there be better innovative way? Can hours/days be reduced for all across? To my opinion RIM was good in getting rid of unproductive and not so qualified people. For this they may start laying off people from higher management first!
Well I dont call it stupid as such because we are running in a very skidy era with the economy. I know its hard for the people who face the cost cutting factor but dont you think its beete to get the cost wastage reduceda bit rather than loosing everything in few years.
"They cut long-term employees, critical operational workers, shutter production facilities,"
"Cost-cutting does not ignite growth, no matter what any management guru has published."
I totally agree with everything you have mention. The Layoffs it is the easiest way to instantly reduce your cost but it doesnt help much. In addition it doesnt help in the development of the company and this action looks like the analgesic pill.
Those top executives do not take such decision only but i still believe financial advisers and investment bankers also get input in cut back whenever the situation arises. To them laying off old & experienced ones, who are on severance pay packages, health insurance and other benefits is always the best.
Meanwhile, I hardly believe getting new hands that difficult to achieve - have it mind that technologies are changing quick, employees' appraisals take place periodically to evaulate who could evolve with new innovations and changes within the organizations.
Why do you think there are so many "free products" available on the internet today?
I agree with you Bolaji. The sad turth is that most listed companies are puppets to their shareprice and shareholders. As such top execs are rewarded on very short term financial targets. Execs come and go and many have very short term selfish goals. A useless exec can come in purportedly to turn a company around. She (fictitious "she or he") gets $300k base and RSU stock award worth $2M over 3 years. Simply by not getting fired until year 2 or 3 she can retire a millionaire even if the shareprice stays flat. If she is a real shark she can slash costs all over the place and sales (due to momentum) stay flat but the bottom line looks better and the shareprice rises so the RSU award is worth even more. Once at a dinner such a sen VP told me he would be better firing everyone in the company except sales and order fulfillment people to push the shareprice up and then cash in his stock awards, then leave. I wish we could find a better way to incentivize execs to do the right thing for the company, its employees, the community, the environment and also the shareholders.....or am I just dreaming.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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