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Flanigan Is Right: Cuts Boost Competitiveness

February 09, 1992

Jim Flanigan has recently written some excellent columns arguing persuasively against the doomsayers' forecasts for the American economy, "Politics Or No, Economy Will Rebound in 1992" (Jan. 1) and "Yes, the Nation Is Almost Broke; No It Is Not Poor" (Feb. 2). I believe that his views are correct.

Other than the factors he mentions, there is another force at work that gives me great faith in the future of the American economy. That is the massive "restructuring" that is going on in American industry.

The announced reduction in force at GM, IBM, Chevron and others is only the tip of the iceberg. The competitive spirit that is a hallmark of the American businessman is coming out, as our industry responds to the need to be globally competitive.

It's hard to accept that something as traumatic as restructuring, which is a polite word for firing a lot of people, could have a salutary effect on the economy, but it will. We know from our own company's experience.

The engineering and construction industry went into a severe depression in 1982.

After a severe loss, our company restructured. We cut our permanent staff in half, eliminated one whole layer of management, along with 14 vice presidents. We reduced overhead by 40% a year. We are now more than twice the size we were at our previous peak, and have been cited by Forbes recently as the No. 1-performing company in the engineering construction industry.

I attribute this primarily to a highly disciplined and lean management that is determined not to allow our company to grow fat. Based upon our experiences, I am convinced that American industry will become more competitive, and thus will expand and create more jobs than were eliminated. They will do more with less!

Though it will be difficult to prove, I suspect that a side effect will be the creation of a whole new crop of entrepreneurs. Many of the middle-management people separated from their companies will find more economic ways of doing the things they became expert at within the massive bureaucracy they came from, thus creating many new jobs.

Why has American industry become so overburdened with multilayered management? I suspect that the culprit may have been the myth perpetrated by business schools--that one man should not have more than seven people reporting to him. I don't know the origins of the magic number, but it has been enshrined as one of the sacred commandments of "scientific" management. It's dead wrong, and business people have discovered this and gone to much flatter organizational structures. The much discussed Japanese "round table" management style is an extreme example of this.

American business is doing the tough things it needs to do and will become leaner, meaner and be more competitive. That bodes well for the future of our economy.


The writer is founder and chief executive of Jacobs Engineering Group Inc. in Pasadena

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