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The Human Side of Hard Times

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In my last message, I noted that harder times call for leaner thinking and presented an action plan. But what about the human side? Lean thinking requires that everyone at every level put in their best efforts and this isn't plausible if employees don't feel their employer is fair in the downturn. So what is the right thing to do with your people?

First off, take everyone out of value streams where they are no longer needed as lean methods are applied. For example, get serious about cellularization and running cells properly, as explained in Mike Rother and Rick Harris's Creating Continuous Flow workbook. Then reduce manning in cells further to take account of lower production volumes while maintaining labor linearity. Then put the best freed-up employees on lean improvement teams to take out inventories, reduce defects and scrap, and improve shipping accuracy right now in order to free up cash, cut costs, and spur sales. This will also make your company much more competitive when the market comes back.

By treating excess employees as an asset targeted at improving the business for the longer term, perhaps you can justify keeping everyone on board even if there is not enough work right now. This is a lot easier for a private or family controlled business, but spending now can pay big dividends in the long term. For example, Pat Lancaster at Lantech sacrificed his own wealth to defend his employees in the 1991 recession and got a big payback in employee loyalty as he pushed his lean transformation in the upturn.

But suppose you can't afford to keep everyone on board with your current workload? Here are some simple decision rules I've learned from the best lean practitioners.

First, look at bringing work back in from suppliers -- production, engineering, services. This can have the double benefit of protecting your people while compressing your value streams, slashing throughput time, and making you more responsive to gyrating customer demands in these uncertain times. (I'll send along my thoughts on value stream compression in an age of uncertainty in next week's message.)

Next, if you still must let folks go, buy out your high seniority employees. This was Art Byrne's approach when he took command at Wiremold in the 1991 recession. The upfront cost was considerable but he was rewarded with a highly motivated, younger workforce during the rest of the decade.

Finally, if you have to let more folks go, protect your best employees -- particularly your managers -- by targeting severance offers. A buy-out for anyone agreeing to go generally results in the best employees leaving.

I truly wish there were some way to defend every employee in this downturn, but there isn't. Trying to save all jobs would often mean a company with no jobs. Thus the real questions are whether you are going to treat your people fairly, present a future-oriented justification of bad news, and build for the future even as you deal with the realities of hard times. 
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