Dangers of addiction to the redundancy 'drug'

THE ROUNDS of redundancies being announced across the corporate spectrum, even as politicians and commentators talk of economic recovery, have convinced large sections of the workforce that the threat of unemployment is here to stay.

The problem is particularly acute in Europe, where the European Union unemployment rate is 11 per cent, compared with less than 7 per cent in the United States and 2.5 per cent in Japan. Perhaps more serious, it is estimated that about half the Europeans are unemployed for longer than a year, against only 5 per cent in this category in the US.

As a result, says John Curtis, vice-president of the management consultants Gemini Consulting, chief executives who seek to keep their companies competitive by continually cutting jobs are 'contributing to a material and spiritual impoverishment of the societies of which they are a part, and on which they depend'.

If these corporate leaders are not concerned about what they are doing to their communities, Mr Curtis suggests, there are good business reasons for changing the approach. In an article in the latest issue of Gemini's quarterly magazine Transformation, he claims that redundancy programmes cannot easily be justified as a continual remedy. 'The lay-off is like a drug that is therapeutic if used occasionally, but dangerously toxic if used regularly.'

'Survivor sickness' is just one side-effect. There is also a general credibility problem associated with routine job cuts - how do you motivate a workforce living in fear of losing their jobs?

Besides these indirect costs, there are also high direct costs and opportunity costs associated with regular lay-offs. This appears to have been recognised by many Japanese companies - which see redundancies as a last resort, and by German organisations such as BMW and Volkswagen, which prefer to put workers on shorter working weeks.

The challenge for traditional Anglo-Saxon-style companies, Mr Curtis says, is to recognise that there are labour market inefficiencies within their own companies as well as in the wider economy. Instead of wasting resources on laying off people, they should be retraining and redeploying them in more profitable areas.

To do this properly requires creating a human resources management system that is as efficient and professional as any of the organisation's other management systems. He suggests the model of modern inventory, or stock, management.

If companies are used to classifying inventory into different groups and setting 'inventory turn' targets for each group, they should be able to set similar turnover or rotation targets for each type of skill or performance level. And if it is felt to be good practice to deal with obsolete stock continuously so as to avoid large annual write-downs, it should be possible for companies to hire, redeploy and lay off staff continuously in order to avoid bans on hiring and large job cuts.

Adopting such a policy would also encourage more sensitive handling of large redundancy programmes when they became necessary from time to time, Mr Curtis argues.

More important, though, it could shift human resources from the fringe to the centre of the company.

And with the right information and training systems, this human resources department could play a key role in helping chief executives deal with one of their biggest challenges: finding ways to adapt and refresh the portfolio of skills within the company, so that it can respond quickly to the threats and opportunities that are reckoned to be appearing more quickly than ever before.