Job cuts are back in vogue

Recession or not, job cuts are back in vogue. In the past few weeks a rollcall of some of the biggest names in business – American Express, Merrill Lynch, Ford, Jaguar, ICL, the list is seemingly endless – have all announced substantial redundancies.

The CBI is warning of 50,000 job losses in UK manufacturing alone and the International Labour Organisation in a sobering estimate predicts that 24 million jobs will be lost worldwide during 2002.

Unemployment, unsurprisingly, is rising and the job market remains a depressing place to be if you are seeking a fresh start.

But the economy is also giving mixed signals. As many companies make job cuts some like Ryanair are hiring new staff.

It seems unlikely the UK will enter a recession under the strict economic definition of two successive quarters experiencing negative growth. So downturn it is then.

Economy is still expected to grow
And the economy is still expected to grow here by over 2% in the next 12 months, much better than in other G7 nations such as the USA (0.8%), Germany (0.5%) and Japan (0%).

Protected by low interest rates and increased government spending, the British economy could be relatively shielded from the extreme ravages of an economic slowdown.

And certain sectors, such as retail, seem far more resilient than others, such as manufacturing, in being able to ride out the storm even the post-September 11 economic meltdown predictions.

So the future may not be so bleak after all.Yet the job cuts continue in large numbers.

Flick open a paper on any day and there’ll be more depressing news of ‘downsizing’.

So is there a possibility that given the outlook for the British economy, even in this economically interdependent age, that managers here may be getting it wrong?

That instead of laying off people, what they should be doing is resisting the temptation to sack until a clearer sight can be made of just where the economy is going.

In taking the long view, instead of reverting to good old-fashioned knee-jerkism, they can also avoid increased costs in the future when they have to start rehiring and re-training when the economy once again picks up.

Labour market driven by fashion
‘Basically the labour market is driven by fashion,’ says Peter Spencer, economic advisor to the Ernst & Young Item Club. ‘If everybody is hiring labour then everybody is hiring; if everybody is sacking, then everybody is sacking.’

Thus if your competitors are embarking on a ‘cost-cutting exercise’, then it would seem none too wise for you to keep your labour costs so high.

It may not seem too sophisticated but this depiction of managers as herd has its advantages, but not for those who end up losing their jobs. If everybody is doing the same it will mean that when one company is wrong, everybody is wrong and no business ultimately loses out to a competitor.

And he admits it would take a ‘very brave person’ to deviate from the party line and suggest a different management move especially in questionable economic times when competitors are reducing their costs.

Explaining that move to your shareholders could also prove problematic.

He sees little chance of any company taking an idiosyncratic line at present.

Nevertheless, Spencer can think of one example when a company broke the rules.

Remember British Leyland
Back in the late 1970s British Leyland (remember that company?) began shedding staff at its plant in Speke, Liverpool, when the orthodoxy of the time was to retain workers.

Wise men at the time said the car company was making a grave mistake.

Soon, however, other companies followed suit.

And management in the present day has improved when it comes to the issue of redundancy, says Murray Steele, head of strategic management at the Cranfield School of Management.

He says companies are less likely nowadays to turn to redundancies as an immediate way of reducing costs. Instead they will take a more deliberate approach to the problem.’I think now they (managers) are being a little bit more measured. They are less into knee-jerk,’ he says.

Considering all alternatives
Steele believes the experiences of former downturns and recessions have made companies consider all the options before beginning the arduous process of offloading staff.

The days of short-term management strategies have, he claims, largely receded. ‘If you are operating and have cash resources to continue for some time and think the market would come back again it would be an unwise business who did a stripping out of people.’

Basically it would be unwise, as when the economy picks up, re-hiring and re-training costs could prove more burdensome than the original costs of laying-off staff.

However, Ruth Lea, head of policy at the Institute of Directors, says any decision to make people redundant will take into account all factors and vehemently contests that companies are prompted by the reflex action to reduce staff numbers.

‘If you are a company faced with falling reviews you have to cut the costs,’ she says.

‘No businessperson would ever sack somebody as a knee-jerk reaction. That is just not how it happens.’

Instead, says Lea, the decision will be based on a minute understanding of the current situation. ‘If they (managers) are any good they will know exactly what’s going on. They will be following their revenue sheet almost day by day and minute by minute. If they don’t, they will be out of business.’

  • David Harding is a freelance journalist.

Related reading