Measuring the Impact of Cuts at Citigroup

Posted by Paul Michelman on April 12, 2007 5:27 PM

We asked Stanford Business School professor Jeff Pfeffer, author with Bob Sutton of Evidence-Based Management, to share his thoughts on Citigroup’s plan to lay off some 17,000 employees. As the New York Times notes, the layoffs present "something of a cultural revolution for a company that has long emphasized expansion over efficiency." Here's what Pfeffer had to say:

"There is lots of evidence on the effects of downsizing—or 'restructuring' as it is sometimes euphemistically called—and that evidence mostly indicates that downsizing does not increase stock price over a long period of time or enhance productivity, quality, innovation, or customer service. But the most ridiculous statement in the New York Times’ story about Citigroup’s plan is that the layoffs will affect 8% of Citigroup’s employees. Until people know who is being laid off, many will be fearful. And there is lots of evidence that those who 'survive' layoffs also exhibit diminished motivation and attachment to the organization—sort of 'survivor' guilt. Citigroup’s actions will affect most of their employees—all right, not the big cheeses but the rank and file—who will wonder who is next and what this portends for the future. In the words of a CEO at a company who once did a layoff, it took us two months to decide, two weeks to do it, and two years to recover. On the other hand, it is in fashion."

Tell us about your company’s experiences with layoffs. Have they proven to be a successful strategy? What have you done to mitigate their potentially deleterious effects?

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Comments

I spent 25 years in technology companies, all of which went through protracted periods of lay-offs. While each company had unique issues, all were the same in that the lay-offs never solved anything. In some cases, they seemed to accelerate the death-spiral. The obsessional focus became "if we just cut heads/expenses one more time, then we'll be right-sized and survive." Time and energy that would have been better spent on trying to figure out what our purpose and value to customers was, instead was wasted on quarterly, roller-coaster lay-offs.

The pattern in a couple of the larger companies (Wang Labs, Genuity) where I experienced quarterly lay-offs was one in which it would be rumored that a lay-off was coming; the rough timing of the lay-off would be announced; people would start speculating about who (groups,categories,individuals) would be impacted; work - other than the absolutely essential must get done to keep operation - would slow to a crawl; lay-off would occur; company meeting/memo/whatever to bolster the survivors - "we've turned the corner, blah-di-blah"; a few weeks on fully concentrated work; rumors of another lay-off...

And so it went. Lay-offs were always to large, and never enough. They were, however, something that management could actually "do" and demonstrate "results". ("We said that we were going to cut personnel expenses by 10% and we have....")

In any case, I've yet to see lay-offs solve the fundamental identity problems (lack of focus, strategy, etc.) of any company.The best I can say for them is that they were sometimes useful for getting rid of deadwood...

- Posted by Maureen Rogers
April 14, 2007 9:54 AM

What is reason behind this restructuring? We often see companies growing, then maintaining that growth, getting in new businesses and suddenly there's this need to cut down? Then, again in a few years, the cycle will be repeated. Does this not lead to a lot of wasteful expenditure? What about the morale of the people who are left behind ?

- Posted by Nitesh Rana
April 15, 2007 9:28 AM

With respect to Citigroup, it amazes me that few are even raising the question of what is top management's - and the Board's - cupability in allowing so-called inefficiency get to the point whereby 8% of the employee population need to be "retro-recruited?" Will they be rewarded with an attractive bonus for meeting their financial targets as a result of the reduction?

Dr. Jeff Pfeffer is absolutely correct; downsizing rarely works, and usually creates some very undesirable unintended consequences.

At least Citigroup did not label its reduction as a "workforce management initiative," a la Circuit City.

robert edward cenek, RODP
www.cenekreport.com
Uncommon Commentary on the World of Work

- Posted by robert edward cenek, RODP
April 15, 2007 9:47 PM