Two Spirals….

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Bruce’s recent post on recent post on SMART goals stirred my thinking about another part of annual planning sessions that I have always struggled with internally: The dreaded “headcount” line in the spreadsheet. The struggle part for me often comes when we try to reduce our costs by reducing people.  Yes, even though the spreadsheet row says “heads”, it really is people and their families!  This is a false economy because there aren’t people left in the oganization to reduce other huge costs that escalate when neglected.

Early in my career a coworker referred to this as the “corporate death spiral” and that name has stuck with me ever since. In my experience we make decisions from headquarters without understanding the actual work people do or what would be required to take on other projects. It looks simple enough to just require the people left to work harder or take on more work without actually improving their capacity to do more. What seems to happen is their current work suffers and the new work suffers and everything is done rather poorly, regardless of the performance of the individuals involved.  Scrap increases, process variation increases, and costs increase. Since costs increased, we need to counteract that with more headcount savings. The “death spiral” has begun and evidently is very difficult to end!

I know personnel costs are very difficult decisions and companies can’t survive by just adding people every time a problem arises. However, when an organization has a multimillion dollar scrap bill or even a poor safety record its always hard for me to understand why adding some boots on the ground to work on the problem doesn’t pay for itself almost immediately?

This seems to be a North American phenomenon. I’ve been fortunate to work for global organizations and have been able to see how the same company operates in different regions. The American region is going through the death spiral and wondering why it can’t perform like the Asian or South American regions. I usually don’t have to go much past the organizational charts of their manufacturing teams to understand the difference.

The successful regions actually seem to be in “life spirals.” They have right amount of people to work on their processes and therefore they operate with high amount of stability and generate less costs. Because they are stable, the people do much less fire fighting and are able to proactively make the process even more stable. This reduces costs even more and they are able to continue to reduce costs and delight the customer!

If the company leadership would take the time to do a simple “5 Why” could they see this? Or is that just too simple that it can’t be the problem? Do they teach simplicity in executive leadership programs? I’d better reserve simplicity for a another post……

So as we go through our strategy planning this year, maybe spend an extra ten minutes contemplating the death spiral phenomenon. We are in a tough time with the economy and tough decisions have to be made.   However, consider choosing a life cycle over a death spiral.  People really do make the difference!

Bryan

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5 Responses

  1. I ws read that the hand writing on the wall for a corporate disaster was when you see management rely on headcount reduction for cost reduction and rely on ‘game changer’ capital projects for improvment. Would companies like you are talking about design a new machine and then throw it away? No, machines have value to these people – the cognitive creative abilities of their people don’t have any value to them. It is sad because it really is a death spiral because, as you pointed out, without people you can’t do improvement work. Machines can’t improve themselves (except maybe the von neuman kind – which like the Matrix is kind of a scary thought), only people can create better stuff.

  2. In one of my first encounters with the head count issue I was one of about 6 or 7 individuals laying out the corporate TPM policy and developing the training materials to reflect the implemenatation of that policy. Much of the discussion was concerning how to eliminate labor units from the maintenance departments. Beiing the only one there with a “blue collar” background I got very upset and really let them know that I was one of the labor units they we were discussing and I had a name and please from now on let’s just say Kim instead of labor unit. The discussion went from elimination of man to elimination of waste, materials, downtime, etc. and what that could add to the bottom line. Yes that could lead to “Kim” reduction but our facility and many of the successful TPM operations expanded the role of the craftsman to higher skill jobs and further eliminted cost with out having to pay the premium for those services. Now that I am in the engineer role I see the need to respect and support your associates on the floor even more. I have yet to see a process that is successful with out strong associates running it.

  3. The problem with the “head count” item is that the people asking for these numbers do not understand the value, they are too far away from the gemba to understand. It is all about the culture they live it. Short term gains verses sustaining a business. This guy has some idea on what to do instead of reducing head count, but I am afraid he is preaching to the choir, the folks that really need to hear the message are not listening. http://corporatedeathspiral.blogspot.com/2009/11/true-cost-of-layoff.html

  4. Lots of people talk about this topic but you said really true words!

  5. […] on people. Bryan mentioned in a post a few weeks ago about what happens when people have too much assigned to them.  They don’t […]

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