Conventional lean wisdom dictates that in order to obtain employee commitment for lean improvements, improvements that by their nature create efficiencies that could threaten jobs, a "no layoff from lean improvement" policy is necessary. Otherwise the employees, the creators of ideas and suggestions, cannot be expected to fully buy in.
Mark over at the Lean Blog has been debating this in a couple of recent posts. Definitely worth the read, especially the comments.
There was a lot of good discussion and I'll amplify my point that it's got to be part of your corporate DNA to manage in a way that allows you to avoid layoffs. If you haven't built your company around that philosophy, it's probably impossible to avoid the need to "cut heads" by suddenly deciding at some point "we want a no-layoff philosophy."
He references a recent WSJ article and another from CNN Money. Both articles describe several companies that have made, and kept, a no layoff pledge or policy, even in these hard times. From small private companies to large public companies, in a variety of industries... including some hard hit by the recession.
Both private companies - like equipment maker Hypertherm - and public companies like Lincoln Electric had no-layoff policies in place long before the economic fallout this year, and have no plans to lift them now. and steelmaker Nucor
"We have a no-layoff practice that we have been able to follow going back to 1966," said Gregg Lucas, a spokesman for Nucor. "That no-layoff practice continues even today in the current challenging economic environment."
That is definitely laudable. It takes some serious leadership guts to make that pledge, especially in industries like steel, cars, and airlines. And keep in mind that's a full no layoff pledge, not a "no layoff due to lean improvements." A much higher bar.
Each company has a variety of tools to help manage the workforce to avoid layoffs.
Some companies like Toyota keep workers busy during downturns with training sessions or classes. Hypertherm reallocates employees to departments where there is a greater demand for labor. Others choose alternative cost-cutting methods like hiring freezes or shorter work weeks.
But here's my problem, coincidentally spelled out by a guy at one of the big name lean consultancies.
One of the major drawbacks to such a policy is the risk of failing, according Michael Chamberlain, senior vice president of Simpler Consulting. If companies instill such a policy but can't stick to it, that will deal a serious blow to their credibility. And, there will always be certain business conditions that the organization can't anticipate in the future, he said.
In addition, if the company has to go back on it's word, anything it says after that, "could be perceived as one more promise that will be broken," according Michael Maslansky, CEO of Luntz Maslansky Research, a market research firm.
In my mind employee trust is king, and this kind of danger is very real. Toyota has made the news over the last few months with how, even though they are not unionized, they are paying their workforce to come in and get trained. It costs Toyota $35 million a month, and they have tied up hundreds of corporate trainers. The UAW Detroit Three "Jobs Bank" by comparison basically pays the workforce to stay home and get trained by Oprah and Montel.
When I visited one of Toyota's most profitable factories in Japan last month, we were told that they had just cut back almost all of their contract and temporary workers. Several factories in the U.S. are idle. The auto demand downturn is severe. So how long can Toyota hold out? How long should it hold out? At what point does the cash burn from its impressive "training but no production" program begin to offset the true value in the knowledge, creativity, and experience of their employees? It's an ugly thought.
What happens if and when Toyota has to lay off? What will we say? Will we still hold them on a pedestal? What will Toyota's "life time employment" employees say? What will happen to their lean prowess, their force of employee-driven productivity improvements?
One of the commenters to Mark's post asked if he had "ever been responsible for a P&L"? I have had P&L responsibility for almost two decades, and have had the ultimate P&L responsibility in that I used to own a fledgling company. It does change you. You want to focus on the people, but at some point you are also forced to make some tough calls between people and the fundamental survival of the enterprise even after all the tools of pay/hour cutbacks and such are implemented. Failure could affect even more people. It's tough.
I think a "no layoff from lean improvements" policy is acceptable and necessary, but a fundamental "no layoff for any reason" policy is a bit disingenuous and downright dangerous. I will say that most companies jump to layoffs far, far too rapidly as they don't perform an accurate business analysis based on the true value of the employee, a value that includes knowledge and creativity in addition to the cost of the pair of hands. But the time may come when difficult choices need to be made, even with employee value in mind, in order to fundamentally keep an organization viable.
Leaders must recognize that value, be willing to make the tough calls with that value in mind, but of paramount importance is to be open and honest with the employees. A demonstrated acknowledgment of employee value coupled with an atmosphere of trust, openness, and mutual sacrifice will allow a lean culture to thrive in even the most difficult of times.
Unfortunately I see some top notch true lean companies like Toyota having to make those tough choices in the next few months. It will be interesting to see how they fare.