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Study Finds Big Drawbacks to Layoffs of Middle Managers : Management: Survey says pink slips create workplace trauma, hamper growth. Transfers may be preferable.

April 28, 1994|From Reuters

NEW YORK — Companies seeking to slash the ranks of middle management will get better results by transferring people rather than laying them off, according to a consultant who has studied companies extensively.

Companies have been rushing to get rid of middle managers to speed up decision-making, reducing the amount of time it takes to get a product to the market and cutting back on red tape.

So-called "delayering" is better achieved by redesigning the way business is handled rather than just laying off middle-management employees, said Craig Schneier, a management consultant based in Pennington, N.J., and co-author of a recent study on the cutting.

That is because layoffs create trauma in the workplace, and it is difficult to then shift more responsibility to the remaining employees.

"To make delayering work, you've got to have a work force that is willing to take added responsibility, innovate and take some risks," said Schneier, "and after you've downsized, we know morale goes down the tubes."

The survey about delayering was co-authored by Douglas Shaw, a management consultant from Newtown, Pa., and will be published in the journal of the Human Resource Planning Society of New York, a professional association of human resources executives.

In examining a group of companies largely chosen from the Fortune 500, Schneier found that 85% of the firms delayered between 1990 and 1993.

"If they had eight layers, they cut three," Schneier said, largely from management "rather than revenue-producing employees."

The main reason for cutting out layers was to speed up decision-making, the researchers found, cited by 96% of the firms.

But only 50% said they had largely achieved this goal simply by cutting back layers.

Eighty-nine percent of the companies said they had cut costs, 86% improved productivity, 81% reduced time needed for decision-making and 69% improved the time it takes to make new products.

The survey also found that despite the aim of cutting the ranks of bureaucrats, only 61% said they had achieved that goal. Communications improved for 60%, and increased autonomy of workers for 55%.

The typical company surveyed had 1992 revenues of nearly $4 billion and more than 24,000 employees.

Among those examined were Aetna Life & Casualty Insurance Co., Bethlehem Steel, Colgate-Palmolive Co., Eastman Kodak Co., General Mills, Motorola Inc., Philip Morris Inc., Scott Paper Co., Southern California Edison Co., Standard & Poor's Corp. and Weyerhaeuser Co.

More delayering was found in the corporate headquarters (85%) than anywhere else, the survey found.

Schneier believes large corporations can't go on cutting indefinitely without stunting their growth and innovation.

"It's not that they're reducing," he pointed out, "but the other side. Where's growth? Where's innovation? They've got to ask, 'Where should we be expanding? Where's the next new idea coming from?' "

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