Cutting payroll doesn't always pay off

With all of the chaos the global recession is causing to many industry sectors, it's important to be mindful that we shouldn't rush to judgment, particularly with respect to protecting our bottom line by laying off workers.

In fact, one Harvard Business School study suggests that focusing too much on payroll management only motivates managers to operate with insufficient labour levels, which in turn negatively affects profitability. In the view of the study author, a focus on maintaining a maximum staffing level will have more of an impact on profitability than even customer service.

While we all know that staffing levels have a major impact on a company's costs, we often don't realize that staffing levels also have a huge impact on quality, both production or process quality as well as customer-service quality. For instance, in a self-serve business, having the right product at the right time and in the right location has more of an impact than the customer service.

Therefore, in the view of the Harvard Business study author, companies need to pay more attention to their staffing levels rather than simply focusing on the value of service quality. In other words, operating at too low of a staffing level doesn't allow for the maximization of profits. Why not? I am sure there are many of you out there who can answer that question.

Many times when layoffs occur, the employees may go away but the work doesn't. In fact, many of the surviving employees are now expected to do the work of three or more people. This just isn't humanly possible.

When the workload is so unbearable, employees suffer from stress and burnout. More mistakes are made, people cut corners, service quality is eroded, production quality slips and more rework is required. Not only that, but interpersonal relationships and customer service also begins to be affected as anxiety increases and tempers flare. As well, customer loyalty, that key linkage in the service-profit chain, will also be eroded because of the decline in customer service.

While every industry sector has different requirements, it is important that organizations, no matter what size, engage in some form of workforce planning to ensure not only that their staffing levels are appropriate, but that they also have the right people in the right place and engaged in the right tasks.

Workforce planning is a continuous and systematic process that allows organizations to determine both the number and the skills of needed workers and the strategies required to meet these needs. There are typically four phases in a workforce planning model. The first phase requires an examination of the strategic plan: answers to questions such as how many and what types of jobs are needed; how skills will be developed internally; and what strategies need to be put in place to recruit, select and retain these skills?

Next most important is the analysis of your workforce. Examine the various occupations, skills and experience, your risk for retirement, the nature of diversity in your organization, turnover rates and other trend data. Conduct a supply and demand analysis, identify the gaps and then develop a strategy for overcoming them. Develop a concrete profile of your workforce so that you know where you are in terms of the right number of people with the right skills. Don't forget to look at salaries, retirement eligibility statistics and retirement patterns and hiring patterns.

Once you have prepared a draft plan, you need to ensure there is senior management support and that the necessary resources are allocated to carry out the plan. The roles and responsibilities for implementing the plan must be identified and co-ordination strategies put in place. Time lines are important as are strategies for measuring success. And, of course, putting communication strategies in place is crucial.

As you can expect, implementation will require constant monitoring, evaluation and revision. Our work life changes so quickly that we must continually review what is working and what is not and make ongoing adjustments. As well, the assumptions upon which we made our decisions often change as well and so we must examine these on an annual basis.

One of the key strategies within a workforce planning model is what is called a skill and competency assessment. Competencies are considered "sets of behaviours" that encompass skills, knowledge, abilities, and personal attribute that are critical to successful work accomplishment. Most organizations are now identifying individual competencies, team competencies and organizational competencies.

They then develop a competency model that displays all of the competencies and demonstrates how they are aligned with the organization's mission, vision and strategic goals. These competency maps are extremely helpful in the recruitment and selection process, in career planning and in training and development. Standard questions can be developed for each competency and can be effectively used in the recruitment and selection process. Employees, on the other hand, can readily see what competencies are required for the next job level and can take the appropriate training to develop these skills.

The competencies can be developed by interviewing high performers and learning what they do in their job or through job analysis questionnaires. Typically, we examine not just what people do but how they do their work. These elements are then grouped, classified, defined and priorized. Once the competencies are developed, they have a long shelf life and can be utilized for years to come.

While workforce planning does take up time and resources, it is a helpful tool for management and organizations to make good human resource decisions. It allows organizations to anticipate change rather than simply react to it. Finally, it allows for the development of strategic methods for addressing workforce issues such as the anticipated retirement of the baby boomer generation.

More importantly, workforce planning allows organizations to ensure that they have the right staffing levels at the right time -- so that profitability can be maximized.

Source; the Effect of Labor on Profitability: The role of quality, Zeynep Ton, Harvard Business School, 2008, Workforce Planning guide, State of Texas.

Barbara J. Bowes, FCHRP, CMC, is president of legacy Bowes Group and vice-president of Legacy Executive Search Manitoba. She can be reached at barb@legacybowes.com

Republished from the Winnipeg Free Press print edition March 14, 2009 G2