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Should Industry Firms Be Lean and Mean? Why To Avoid Layoffs

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Back in November, an eminent construction executive made a presentation at an insurance conference on survival strategies for contractors. Part of his presentation was advice about making layoffs, which was timely. If you look at what U.S. businesses have done in the first phase of the current recession, they have propped up their financial results by cutting personnel. The executive outlined the choices employers face, using a medical term—amputation—for cutting whole departments or units, and a term from 16th-Century warfare—decimation—for cutting a portion of each department.

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However, there are two other parts of the issue that did not come up: the moral dimension to employment and a body of research showing that layoffs cost more in the long run than they save.

Simply put, we believe construction contractors, managers and engineers all qualify as professionals, and as professionals they share a responsibility for the well-being of the industry and the country. In a vicious recession with almost 15 million unemployed, what’s right is to employ as many people as are needed to do the work for as long as possible.

A Professional’s Creed

The idea of business as a profession isn’t new. In 1912, future Supreme Court Justice Louis D. Brandeis said the key characteristics of a profession are that it requires intellectual training or education, is pursued not “merely for one’s self” and that the “amount of financial return is not the accepted measure of success.” Others have argued specifically that contracting is a profession.

We know it’s bad practice to bid low just to stay in business and keep working. A contractor can go bust if the job goes bad, profits don’t materialize, and bankers desert the firm. But keeping people employed through the thin times is on the same level as honoring agreements, sticking to ethical codes and maintaining a safe, discrimination-free workplace. A number of companies report that by using work sharing and other methods, they are able to avoid layoffs.

After counting all the costs associated with a round of layoffs, the long-term benefits are “an illusion” and “weaken the entire organism.”

On the other hand, recent scholarly research suggests that layoffs are self-defeating. Jeffrey Pfeffer, a professor at Stanford University’s Graduate School of Business, recently wrote that after counting all the costs—severance, vacation, sick pay, unemployment- insurance taxes, low morale and risk aversion by remaining staff, loss of productivity, diminished trust in management and loss of institutional memory—the long-term benefits of layoffs are an illusion. Rather than amputation, layoffs amounted to bloodletting, “weakening the entire organism,” Pfeffer wrote.

So if you think you can’t afford your big heart or that lean and mean is the best option, think twice. If you’re weighing decimation or amputation, enter a new term on the spreadsheet of definitions: preservation.

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