Bucking the Trend

note: please read these two essays first, to establish a proper framework/context, before continuing with the work presented below -- thank you:
http://www.darkpoetry.com/dp/17748/110767
http://www.darkpoetry.com/dp/17748/111256






Bucking The Trend—Exploring New Opportunities
For Increasing Profits Via The Increase In Workforce



There exists a current equation for determining the profit margin, which is fairly simplistic, pragmatic, and accurate for the average manager to utilize. It is one of the first equations (Kelly, 2004) that the business student will learn:

Profit = Revenue – Expenses


Many items can be noted, when taking into account this simple equation, but two are of critical importance as they are relevant to modern decision-making: 1) the “bottom line” is easily calculated as the highest point of expenses; and, 2) the lower the “bottom line,” the greater the profit margin. Herein there exists certain underlying assumptions, which cumulate to form a governing premise: employee wages are expenses and executive wages are culled directly from the profit margin, therefore, in order for the corporation to put more money into the pockets of its executive staff, employee wages (deemed “redundant” where-ever possible) are eliminated in the form of company layoffs for the purpose of “efficiency.” Again, it must be reiterated, that this is the common interpretation of the simple equation above, and this practice has been increasing since the late 1980’s, so as to “rid the waste, increase profits, and drive our stock ever higher.”

There exists a second interpretation (Kelly, 2004), however, for that very same, simple equation that seems to guide so strongly our national (if not global, and definitely local) economies: that employee wages can be considered, via a simple and accurate manipulation of the variables inherent to the equation, as part of the earned profits, such that these wages are no longer considered “expenses”—and therefore are not to be considered for extraneous elimination:

Profit Earnings [being: Employee + Executive] =
Revenue – Expenses


This is a handy, and useful re-interpretation of the same equation—still just as accurate, but it has the effect of shifting the attitude from employees being a “cost” to employees being a “profit.” Such an interpretation is, today, being applied by many of the top companies, such as Southwest Airlines and Starbucks.

However, I contend that other possibilities abound—that indeed, it may be possible to accurately manipulate the equation still further to consider employee status as a benefit variable (as opposed to a cost or a profit variable). This is important, for re-defining the notion of “business” to factor in environmental issues beyond the financial scope, effectively considering employee contributions as intrinsic to the quality of the product, goes well beyond the physical benefits—out with employees being cost-components or even dependent-elements of profit, and in with the concept of employees as a variable of both profit-origin and profit-expansion:

Profit Margin =
Revenue (generated via Employee Assets x contribution and innovation) –
Investment (Capital, Materials, and Wages [being: Employee + Executive])


Such a change provides for the realization that the contribution of employees is an inherent factor of increased margin, and that to exclude the contributions of employees (via layoffs) is like cutting of the nose to spite the face. The minimal amount of “cost” associated with a given employee is no comparison to the profit-potential if the skills, ideas and decision-making are effectively tapped into. Such a change in interpretation, attitude and behavior places a burden on management to recognize these values in employees; places a burden on senior management to recognize these values in management; places a burden on executive level to recognize this in senior management, and so on. We can also see that executive wages are given the same quality in value and interpretation as that of employees (both can, and rightly should, be considered costs)—which will provide a vital piece to the puzzle later on in this essay.

Further, we, being the new and improved, most uncommon of the uncommon managers, must take into account that employees are more of a resource than the term “human resource” can possibly capture. Machinery, property, etc., may be sold off to increase capital—whereas capital itself is never “cut” as a resource, but rather re-invested for an even greater return. Employees treated with the same level of respect as a resource as capital, and as such effectively utilized as investments, will likewise provide for a greater return—as opposed to merely laying them off, which can only provide a negative return for the individual, the company, the community and the sector. Laying off personnel, if the practice is abused, will end up costing the company more in the medium to long term, when additional employees need to be re-hired and re-trained (e.g., Boeing, with its respective cycles of layoffs and subsequent rehires).

Also, high morale as an inherent component of atmosphere creates higher motivation in times of change: ideas are effectively tapped; problems are resolved in timely fashion; systemic problems and inefficiencies are more easily eradicated. Following the shift in attitude (not to be considered a shift in paradigm, for we are still using the same, simple equation) allows employee economics to become part of the goal, up to and including their health (etc.) benefits, and forces us as executive managers to accept responsibility the economic contribution to the community, and the economic contribution to individual participants, as part of the primary mission. This change will effectively reverse the notion that “cost-saving” decisions, such as ‘efficiency-based’ layoffs and/or the exporting of jobs (outsourcing) overseas, in the name of the ‘bottom line’ are truly beneficial to the mission, each of which only serve to:

• remove the service from the customer
• removes capital from the community
• can effectively shut down entire regions—causing a shift in populace not unlike that seen in “Grapes of Wrath” (depression era migration)


I am arguing against the notion that “law of diminishing returns” is a viable formula, and countering it, directly, with the alternative “sum is greater than its parts” theory, such that setting up circumstances that create a need for additional employees is actually far more efficient than cutting existing positions. I am arguing against the addiction to the current anorexic- model. I am specifically arguing against the metaphor of cutting jobs as “trimming the fat” as a faulty analogy to the real world open system of economics for two reasons:

1. efficiency theory dictates that unless the tasks are commutative (no precedent action), then the law of diminishing returns can not be applied
2. efficiency theory dictates that unless the processes are sufficiently related, then the supervision, reporting and decision making procedures must be respectively allocated to separate authority


But, as I mentioned at the start, the common manager, the common executive, the common CEO and Board are applying the original interpretation—all the implications included, and simply in the name of that all-powerful “bottom line.” I assert that constant abuse of this mentality has become more than just contagious, it is epidemic—no, pandemic. It has created a trend that is itself, ironically, unmanageable.

Can this new trend be differentiated, isolated and recognized—exploited, manipulated and managed—from previous economic phenomena? I believe so: differentiated in terms of scope (affecting the entire world, but also affecting multiple industries, professions and sectors), isolated in terms of the discrete implementation of phone trees, on-line “customer service,” and ATM’s (just to name a few examples), and recognized via the extreme shifts in the service from the companies to the consumers themselves (who still pay for the supposed service). The exploitation, etc., of this phenomenon is also discrete: entire factories repeatedly shut down and “transplanted” to another location for the sole purpose of taking advantage of lower wages—Boeing, Intel, and Nike are some of the first that come to mind, but they are but a drop in the vast corporate world bucket.

Where does this trend historically fit into organizational theory? I will attempt to show a distinct causal and chronological location for this phenomenon:

Industrialism (1870’s)
• Shift from agriculture to manufacturing
• Organizational structure is complicated and complex: “tree-like”
Owner
Executives
Higher Management
Middle Management
Lower Management
Supervisors / Shift Leaders
Employee/producer

Direct Sales (1900’s)
• Slight increase in customers over the next few decades
• Communication via publications
• “Two books in every home”: Bible and Sears catalogue
• Minimal addition to organizational structure
• Representatives from Lower Management down

Consumerism (1920’s)
• Artificial phenomenon—an entity derived specifically to create demand for industrial products
Initial modification:
Defining the consumer as a discrete entity
Assigning the consumer a class structure
Ordering of classes
Split role of producer/consumer
• Services—first developed to correct minimal problems for products that couldn’t simply be replaced
• Moderate increase to workforce with minimal increase in bottom line
• Representatives from Lower Management down

Marketing / Direct Sales (1930’s)
• Increases consumerism
• Moderate to major increase in workforce
• Adds to organizational structure—entire Marketing Department added
• Marketing representatives added from Higher Management down

Retail / Sales (1950’s)
• Introduction of first “malls”
• Drives consumerism
• Major increase in workforce
• Adds to organizational structure—entire Sales Department added
• Stores create need for both sales and operations management
• Sales representatives added from Lower Management down

Computer Age (1960’s)
• Increasing mechanistic automation
• Slight decrease in blue collar work force
• Increase in service work force over time

Peter Principle (1970’s)
• Initial downsizing of blue collar work force
• Continued increase in service work force

Automatonism (1980’s)
• Advanced Peter Principle
• Advanced layoffs in blue collar jobs
• Initial downsizing in management—say goodbye to lower management as they are either absorbed into the dreaded “middle” arena or laid off

Dilbert Principle (1990’s)
• Initial downsizing of service jobs
• Automation (ATM’s)
• Major downsizing of management—say goodbye to much of the middle management segment

Information Age (1990’s)
• Advanced downsizing of service jobs
• Increased automation
• Outsourcing
Phone trees
Sub-contracting
• Loss of Supervisors--organizational structure vastly reduced from its height in the early 1960’s:
Owner (of multiple companies)
Executives
Management
Service worker

Advanced Consumerism—term designated for current trend (2000’s)
• Reduction of entire work force to temporary/part-time work, if work is even available
• Advanced behavior modification for consumer
Consumer creates service product
Consumer inputs information on-line
Consumer answers own questions / solves own problems
Consumer pays for product
• Organizational structure is minimalist where possible:
Owner (of multiple companies)
Executives
Some service personnel (some with slight pay differential and illusory “manager” title)
Consumer


“I plan to start my own no-frills airline. For only $23, I’ll let people hold out their arms and run to their destinations.”—Dogbert


Neither the epiphaniacal experience derived by the protagonist in the movie “Jerry Maguire” (Crowe, 1996), nor the savvy social restructuring conceived and established by President Roosevelt concerning welfare, nor the radical shift in economic paradigm argued by Marx in the form of communism and implemented (or, perhaps strictly speaking, attempted) by Lenin, is being advocated for here—but rather a subtle alternative in awareness, mixed with a minor change in the definition of the economic equation and a bit of risk on the part of well-meaning and profit-seeking capitalists.

One possible application of the equation would incorporate incentives for implementing part-time (with benefits) work with the intent of increasing education. It would provide a bonus for managers who can change their respective dynamic to increase jobs, and penalties for those who mis-manage their resources, placing themselves in a position to lay off workers and stress the community variable of the economic equation. Further, it would provide penalties for those managers who do not have the foresight to effectively reduce overtime—with the limit for full-time reduced to a maximum of 35 hours for scheduling purposes. This is as controversial as requiring, or expecting (or hoping for), manufacturing companies to incorporate proper waste disposal and pollution control into the bottom line on the outset of the production line—as opposed to the current practice of tax payers providing for the waste removal, etc., at the end of the respective product’s life cycle. But such changes in attitude, such changes in the profit equation for running a business, though a dramatic rise in management and corporate discipline, can have an equally (if not greater) return in benefits for all.

A change in behavior would likely be employed in terms of management promotion as well, creating a direct tie to the increase in the number of employees—if the manager can find new means of production, increasing the diversity in company profile, and therefore create a specific demand for a greater workforce, then the manager is promoted to effectively oversee that workforce. As such, the company invests in the local community by directing its capital through management in order to discover greater employable opportunities (creating viable assets out of stagnant capital). This application increases spare time for the full-time worker, increases the number of workers, increases the community contribution, increases morale in the work environment, increases productivity, and therefore directly increases profits while relieving economic stress.

Taking on such a risky approach, adapting to this shift in attitude toward workers as assets instead of liabilities, means shifting the responsibility onto the shoulders of management, encouraging them to remove any aspect of labor from the variables concerning the bottom line, while simultaneously lowering our common dependency on the failing tax-based system. This is just one of many pragmatic and viable opportunities waiting to be explored. The current mode does just the opposite: shifts the workforce overseas (or into a faulty automated structure), decreases expenditures creating the illusion of greater profit while actually vastly decreasing revenue potential, decreases the buying potential of the consumer (an adverse effect often noted as a key economic indicator), decreases morale and productivity (and service), increases the number of unemployed in a given area and therefore increasing the economic stress and dependency on the tax structure—not a winning dynamic by any measure.

The application of this new approach places the onus squarely on the shoulders of senior management, executives and board members: you want the privilege of running a business in our community—the opportunity to become wealthy—then incorporate accountability to the local workforce in your mission statement and your business practices (not merely the PR programs of “minor monetary contributions” which are both tax-deductible and serve as a marketing scheme). A CEO, pocketing millions (and by accounts over the last decade, that is not by any means an exaggeration), that has allowed hundreds if not thousands to be laid off is not acting in the capacity of an executive officer, is not acting responsibly, is not acting in a competent fashion, but rather acting as a leech sucking out the life-force of the local economy—to reward such a moron with a large sum in the form of a severance pay, or to allow any benefits to be shifted to a CEO as a direct result of layoffs (in the name of “the bottom line”) is inexcusable. I cite, as a specific example, the incident at the Longview Aluminum plant in Washington, shut down so that the CEO could allegedly sell off energy shares (Bonneville, 2003, Oregonian, 2004):

“An agency program cuts electric use during the power crisis, but eight of 10 smelters don't reopen. Michael Lynch, an ambitious Chicago industrialist, arrived in this gritty river town in February 2001, the new owner of the aluminum smelter that for 60 years had been a mainstay of the Cowlitz County, Wash., economy. Lynch immediately closed the plant, throwing more than 900 employees out of work. His company filed for bankruptcy two years later.” (Oregonian, 2004).


Reward companies for the discovery of new positions in the local community … what a concept. CEO’s and associative higher executives taking slight personal pay cuts (deemed profits by the current model, unlike the wages of the working class, as discussed earlier), and utilizing these funds to hire more workers—realizing that the contribution to the community, to the local economy, to the environment, is a far better investment than one’s own back pocket.

Though I would readily acknowledge the following paraphrased quote, “we must judge the wealth of a community based on those who are the worst off” (author unable to locate specific reference), I should revisit the question of whether this is change in attitude is in any way communistic in nature or form—and I assert that on the levels of theory, intent, discovery, application or implementation, this new attitude is absolutely not communistic by any means! Certainly this will involve some leveling in wages while increasing benefits, and a change in the very definition of wealth (for the individual at any level, as well as the local community as a whole) and how that wealth is measured, but the basic intent is for an increase in that wealth, an increase in morale, an increase in productivity, which is very capitalistic both in its conceptual form and in manifestation.

I should mention, with regard to benefits as I have included them in the overall asset variable of employee investment, I believe in tax-based health care being provided for those who can not work either due to a disability or unemployment, and I strongly believe in tax-based contributions to education, but I vehemently disagree with the current practice of employers not providing health benefits for part-time employees—this is a corruption in the system, a loop-hole that allows for companies to employ two laborers, at 58 total hours of productivity, without having to invest in their welfare.

Worse yet, in order to retain a part-time position at a particular company, the employee must provide complete open availability to that company (with very few exceptions to that rule), or they risk termination for cause. As such, part-time employees not only have a difficult time obtaining health benefits, they are unable to maximize their respective earning potentials by doubling-up on prospective part-time positions. The retail sector is particularly notorious for implementing this practice—to the extent of “re-organizing the entire sales staff specifically reduce the number of non-management full-time workers” (anon., 2004), as was the case recently with the electronics retailer, Best Buy. I have had personal experience with this practice at both Best Buy and Wal-Mart, both of which are leaders in their respective retail niches, and have had little if any trouble competing on the stock market.

It is completely valid to assert that many work positions require little, if any, thought process, and that many of these positions can, and probably should, be replaced with full automation (e.g., ATM’s that can dispense discrete amounts of currency, transfer monies between accounts, and provide respective account balances). But a bank teller, for example, provides far more than this in terms of service, as the teller is in the specific capacity to advocate for the bank customer. Phone trees, etc., are either abused by companies (who do not wish to pay for the actual service they are supposed to deliver—some estimated at $4 per call to speak with “an actual human being” (anon. 2, 2004)) that will purposefully design the system to deflect callers from human contact, or are purely nonsensical in nature with ambiguous or confusing directions—what kind of choice is that for a customer? The current trend is replacing advocacy-style customer service with the illusion of convenience: “what we have today is a lack of service, [an overabundance of] phone trees, and misleading tag lines ” (Campbell, 2004).

But it is equally valid to assert that companies which find ways to hire more service workers, and find ways to empower these workers, are able to attain an even higher profit differential. One such company readily comes to mind: Les Schwab. And the following advertisement sums up this idea perfectly:

“We guarantee our service like we guarantee our tires. When you come in, we come running [that is a fact that anyone can test—my insert] … with a smile that says we’re glad to see you and ready to help you in any way we can. We know that the strength of our company comes from great employees…” (Les Schwab, 2004).


Are the current practices ethical? To a degree, even a high degree, I would say yes. Managers are simply doing what they feel is necessary to increase efficiency and reduce redundancy—it is what they are taught, and very few are able to make the transition, indeed the transformation, into a new interpretation, especially when their own jobs are on the line. But I see many exceptions, such as those that follow, many practices that are beyond unethical:

• Boeing’s cycles of layoffs are bad enough, but let us consider their request for former employees to train their respective foreign replacements—how ethical can that be? (Boeing, 2004).
• Mass layoffs, in the wake of gigantic mergers, like the recent Bank Of America merger with FleetBoston Financial Corporation. Again, it must be noted that “redundancies” is a common term applied to this process. (BofA, 2004).


Can this trend be reversed? That’s the million-dollar question (or, perhaps, billion is a better term ["trillion"? adding this new level as a necessary, if dreaded, requisite response to the latest economic stimulus packages -- enjoyed by the banking institutions alone so far (this note introduced January, 2009)], considering the amount of compensation in cost being targeted for layoffs). Is it even realistic to ask businesses to shift focus away from the “illusory” bottom line? I believe so—especially if it can be demonstrated that the benefits do indeed far outweigh the risks. Is the new interpretation of the economic equation pragmatic? I hope so, for if that is not the case, we have a long, hard road ahead of us, with no “simple” solution.




REFERENCES

Anon, 2004. Personal conversation with Best Buy employee.

Boeing, 2004. “Laid-off Boeing workers struggle to build new lives,” Oregonian, Business section, April 18, 2004.

BofA, 2004. “Bank of America will cut 12,500 jobs over 2 years,” Oregonian, National Briefs, April 6, 2004.

Bonneville Power Administration (2003). “BPA clarifies statement concerning Longview Aluminum,” http://www.bpa.gov/Corporate/KC/home/nreleases/NewsRelease.cfm?ReleaseNo=357.

Campbell, Shane (2004). Phone conversation, April, 2004.

Crowe, Cameron (1996). “Jerry Maguire,” TriStar Pictures.

Kelly, Marjorie (2001). The Divine Right of Capital: Dethroning the Corporate Aristocracy. San Francisco: Berrett-Koehler Publishers, Inc.

Les Schwab, 2004. Advertisement, Oregonian, “This Week April 13 – April 19, 2004,” p. 5.

Oregonian (2004). “BPA'S $1.8 BILLION PAYOUT TO ALUMINUM PLANTS YIELDS UNFORESEEN RESULTS,” April, 11, 2004.



Addendum:

Seems my paper (written in 2004 for a class) was about 5 years ahead of its time:
http://www.boston.com/news/local/massachusetts/articles/2009/03/12/a_head_with_a_heart/?s_campaign=yahoo