Leaving some slack

In the last few months, I have read (and written) about companies experiencing some rough times financially that have responded by cutting operations and staff to operate leaner and meaner. As I have heard so many times in periods of downturns, it is time for people to tighten their belts, put their backs into it, and pull a bit more weight. All of which made me think of a conference session I attended earlier this year.

 

The talk was on lean transformation in healthcare, and the irony was not lost on me as 20+ healthcare specialists and I stood in the back of a room that was too small, didn't have enough chairs, and offered no air conditioning, listening to a speaker talk into a microphone that needed fresh batteries. Quipped one of my fellow attendees: "It's called 'lean transformation' because we have to 'lean' against the wall."

 

Therein lies my problem with lean transformation and corporate downsizing; so often, in an effort to cut costs, companies cut in the wrong places or cut imprecisely and end up losing more ground in the long run than they gained in the short. I am the first one to suggest that there is a lot of waste in the drug industry, but from my vantage point, it appears that the waste is front-loaded, based on ill-considered business decisions. It is built into the system, and it is up to the people working on the line (research, production, infrastructure, sales) to deal with the downstream repercussions.

 

[As an aside, I look forward to the day someone says: "Sorry, folks. We can't afford Six Sigma. You're just going to have to make your numbers with four."]

 

Often, when a company cuts its staff or operations, it does so in broad strokes, lopping off projects or divisions as though they were gangrenous limbs. And given that a company rarely manages to layoff only its idiotic employees, you have to wonder at the invaluable intellectual property that resides within the experiences of the employees walking out the door. Similarly, what processes or practices developed in the forsaken projects or divisions could be applied to the retained projects, keeping people from having to reinvent the proverbial wheel?

 

All that institutional intelligence lost through shoddy exit interviews.

 

And what about the people left behind to make up lost ground? They are expected to do significantly more work with the same resources (including pay), leaving them little of the time or energy required to see and seize new opportunities on the horizon. As business school professors Daniel Muzyka and Lawrence Weiss recently suggested, this lack of slack in a business system can be significantly detrimental to the future well being of a company.

 

In an article for The Globe and Mail, the University of British Columbia's Muzyka and Georgetown University's Weiss wrote: "It seems hard to blame anyone for reducing slack when the very word is synonymous with 'negligent,' 'careless,' 'remiss,' 'weak' and 'lax.'"

 

There is nothing wrong in removing unnecessary costs and tightening up processes, they suggest. "Rather, we question whether some level of slack is not necessary to ensure the proper innovation and responsiveness on the part of organizations—and whether some of the legitimate cost reductions might be redirected at implanting essential resources in companies. These questions are especially poignant in an environment where the heavy fixed financing costs of leveraged buyouts pressure management to focus on short-run efficiency over long-run opportunity."

 

Slack allows companies to remain agile and responsive in the face of uncertain future demands. Furthermore, employees that are stressed to their limits do not have opportunities to "reflect, experiment, and innovate," Muzyka and Weiss add, whether to simply increase their output or to identify new ways in which their company can stay ahead of the market and perhaps open new territory.

 

Managers, they argue, have to make decisions on the basis of "a broader understanding of the marketplace and the desired positioning of the organization," balancing short-term goals against possible long-term repercussions. This is particularly true, I believe, for the pharmaceutical industry, which has to manage long-term discovery and development projects in an environment of short-term business cycles (and the short-term decision-making that goes with them).

 

Failure to do so appropriately might just "lean" us out of a job.