One of the nice things about travelling to Holland once a month is that I get a different news flow. First I get British news through the BBC on my way to the tunnel. In France I get the French view of the world, 50% of which I miss due to the speed of delivery competing with my reducing ability to understand French. Then I get the Belgian news, a country which seems to continue to thrive despite the lack of a government and finally I get the Dutch news.
It was an item on the Dutch news about job cuts at Philips. They are going to cut 4,500 jobs ‘to reduce their bureaucracy’, of which 1,400 in Holland. That sounds great for shareholders, doesn’t it? Well I am not so sure.
Philips employed 123,000 people in 2007 and probably more now. The cut is therefore around 3.5% of the workforce. If all employees work there the full 40 years (a little old fashioned concept I know) this means their natural attrition rate would achieve this number within a year and a half. We all know staff turnover is a lot higher, so my guess is that it would only take a few months. So redundancies should not be necessary, except that the people leaving will not match the areas to be cut.
Philips has always been bureaucratic. In the eighties I ran into a friend at Stansted who was flying back to Holland, on the same flight as I was. She worked for Philips and she told me she needed eight (!) signatures to be able to buy the ticket and then fill in an expense report. I had to fill in an expense report – that was it.
In 1997 Philips moved its global headquarters from Eindhoven to Amsterdam. It was rumoured at the time that this was done to facilitate the removal of ‘dead wood’ from its management structure, presumably to make the organisation ‘slicker’. Well, it appears nothing much has changed. Bureaucracy still reigns.
Keeping staffing numbers under control is vital in any company. With each new recruit you need to ask whether you really need that person. Simply replacing a person because someone has left is not the right answer. Can you change tasks around or better still, can you eliminate that position? This question should be asked each and every time and the recruitment of a replacement should be fully justified. The sad reality is that most managers still feel their importance is reflected by the number of people reporting to them, so replacements are simply recruited and the effort is made on expanding numbers.
Reducing staff is almost always to cut costs. Bureaucracy is a culture and cutting staff does not change culture.
A large car rental company I had a series of franchises from went through ‘headcount reductions’ every couple of years. Large numbers of staff would be fired, always car cleaners. They would then outsource the car cleaning (I love outsourcing), find it did not work, and two years later they would be back where they started, having incurred high redundancy costs, big damage losses, and fantastically depressed staff morale.
In the meantime of course salaries for top management sky rocket. We have just read that executive pay has increased by something like 40%. It is clear that doing something at that level would have a much greater impact. The previous CEO received 2.5 million Euros from Philips in 2010 plus a fee from Shell for his NED work.
Small companies suffer from the same challenges. I worked with a company for a year which had a brilliant product, a great market and every chance to become a European leader in its field. What did it do? The CEO and owner took so much money out of the company that he went bust – twice! What a missed opportunity! Of course the staff could not really care less, as they saw the greed at the top and disdain for the staff.
So my friends at Philips – I know ‘cutting staff to reduce bureaucracy’ makes good reading for the press as it shows you are a CEO of action, but in fact it is not very impressive. My guess is that it will do nothing for your bottom line, certainly not in the short run and will do absolutely nothing to improve the willingness of your staff to take their own responsibility to move the business forward. Better to cover their rear ends with eight signatures to make a business trip.
In the meantime we as entrepreneurs can learn lessons from these people, if it is only how not to do things.