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Morale and Loyalty

I hesitate to bring up the topic of loyalty. Not too many years ago you found that loyalty was a strong characteristic of many companies. Loyalty by the employee to put out that extra effort, the "college try". And loyalty by the company to do right by the employees, not only in good times, but also in lean ones. From Business Week, an anonymous execu­tive "...wonders if the repairmen who now rush to set up emergency communications lines at the scene of incidents such as the bombing of the World Trade Center will move less urgently because of (company's name) perceived lack of loyalty to its employees."1

The restructuring craze of recent years has altogether destroyed the feeling of loyalty on the part of workers, as employers across the land have abandoned all semblance of loyalty to their workers. I have a very cynical attitude toward companies who have some kind of pious statement in their corporate vision document to the effect that "em­ployees are our most important asset." My immediate reaction is, "Yeah, as long as it is convenient."

It is significant, I think, that the personnel department of old, is now the Human Resource department, rankingright up there with Manufacturing Resources, and Production Resources. "You need some, you buy some, you don't need it anymore, scrap it out," seems to be the rule of the day. We treat our "human resources" like we treat our excess inventories.

Poor morale and destroyed loyalty are hard to measure, and since these feelings are internalized by the workers, also largely are hard to spot. Nevertheless, American corporations will be paying a huge, even though inconspicu­ous, penalty for their current abuse of their employees in the coming decades long after the current fad has passed and its folly recognized.

From Business Week, " 'Two months ago, I would have said that morale was low and it couldn't go any lower,' says an anonymous executive. 'But I'd have to say it's even lower today.'"' From an editorial in Business Week, "In an era of corporate downsizings, drive-by shootings, and medical uncertainties, insecurity runs rampant in America, par­ticularly within the middle class. Lifetime employment is gone, the streets are unsafe, and going to a doctor is a big deal."7 Notice how Business Week makes these things equally severe.

Is Cost Cutting the Goal?

I once worked for a company that was not prospering. The controller was fixated on cost cutting. He was rude to anybody who had an idea not related to cost cutting. I finally got irritated enough to say to him, "Dave, the ultimate cost cut is to close the doors, fire all the workers, sell all the assets, cancel the lease, pay off all the creditors, distribute any money left over to the stockholders, and turn back the corporate charter to the State of Minnesota. Costs fall to zero." Of course I got no response to that comment, but it does illustrate that the logical conclusion of being fixated on cost cutting is total liquidation. The American corporation is supposed to make money, not cut costs.

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Hollowing Out

Another favorite cost cutting strategy has been to move production to low wage rate areas. The name of the company and their headquarters location remains the same, but much of substance has been hollowed out and relocated off-shore. Recognizing that manufacturing cre­ates value, this is a very damaging strategy for the Ameri­can economy. And somehow, this doesn't pass the sanity test. I consult with executives with many companies, and most of them have direct labor of less than 10% of cost of goods sold, many of them are at less than 5%. For these 5% companies getting direct labor for free wouldn't make much difference to their profitability. I believe that many companies that have moved production offshore do not take the full cost into account. Maybe direct labor cost per unit goes down. But almost always lead times are dramatically increased, and inventory too. The administrative burden is much higher, especially if you ponder customs clearance. Too, quality is often a problem, and customer service suffers as a result.

I have a fictitious headline, from the early '70s: "Amalgam­ated Association of Consumer Electronics Manufacturers, announced that they collectively have decided to cease manufacturing in the US, and move all production of consumer electronic products to the Pacific Rim, within the next five years. Wall Street goes into ecstasy." Although this headline is entirely fiction, that is just about what has happened.

More recently, we have rediscovered what we learned in Business Administration 101, that as workers become more productive, as they do in an American-style factory, sooner or later, they share the gain with increasing wage rates. This is desirable from the standpoint of the world, national, and local economies, but tends to wipe out the

perceived low-wage advantage. As a result, a fair number of companies are moving production back to the US where we now have learned how to manufacture efficiently and

effectively. Some American factories are now the low-cost producer, world-wide.

The Real Goal

Back to Business Administration 101. Here's a very important question. What is the one, overarching goal of the business corporation? Is it?

• Excellent customer service

• Perfect quality

• Treating our employees well

• Being the technological leader in our industry

• Being number one in market share

• Being a good corporate citizen in our communities

• Loyalty to our suppliers

• Returning profits to our owners

None of the above is the right answer. These and any others you may think of are derivatives from the primary goal. The primary goal of the business corporation is to perpetu­ate itself. And it is incumbent on management dynamically to adopt whatever derivative goals are necessary over time to achieve this goal.

To be Continued


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