Fox Business News Correspondent: Good morning, more than 2,000,000 layoffs certainly have hit individuals hard, but there is also a ripple effect on stock price, employee morale, and productivity. So how do executives go about deciding who gets to keep their job? Well with Insights this morning, we are joined by Jon Winsett, a managing partner at Spend Management consulting firm NPI Financial, and Mark Murphy, the chairman of the research and training company LeadershipIQ, and Dan Shaffer of Shaffer asset management, he is the CEO. Good morning gentlemen, good to have you here.
Jon Winsett: Good morning
Fox Business News Correspondent: Jon let me start with you. What are the major reasons why companies decide to cut their workforce?
Jon Winsett: Well they are trying to save money any way they can, and at NPI, we tell our clients to exhaust every method before they begin contemplating job cuts. There are so many ways that companies can save money by just looking deeper into some of their cost line items, any areas that they spend in which are highly negotiated like IT, Transportation or telecommunications, it's so easy for companies to over-spend in these areas. So we advise them to bring in external market experts to benchmark their pricing to makes sure that they are not overspending. The last thing an executive wants to find out the morning after laying off fifty people is that they may have been able to pay tens of millions of dollars in other areas.
Fox Business News Correspondent: How do they decide, Jon, who to cut, because on Wall Street, usually, if you cut one top managing director, that could save as many as five other jobs, say of associates or VPs. So how do they decide?
Jon Winsett: Well we see our clients really focusing on people who bring in review, who are affecting the top-line growth, like all the sales people. Those executives which are a big drain on the bottom line, they may not be so save. I think key thing here is to bring an objective eye, and make sure you cut the fact and not into the muscle, and that you keep those core value-producers on staff.
Fox Business News Correspondent: Mark, what happens to the people who remain? I mean, is there a concern about whether their productivity increases or decreases because morale is so low. How do they address that in corporations?
Mark: Typically there has been this great myth in corporate America that once you have a layoff, the remaining employees are going to be so grateful that they survived that they are going to work twice as hard, and that productivity is going to go up. We find that the opposite is true, and that 74% of employees say that their productivity decreases after the layoff, and that they are not sitting around feeling grateful, they are sitting around feeling guilty, anxious and angry, and that the number one thing which organizations really have to focus on is outplacement for employees which are leaving. Any that's wonderful, but we do need to especially focus on all the employees which stay. How do we keep them productive? So leaders need to get our, need to be engaging, they need to be approachable and they need to be candid, and it really requires high-level, highly-skilled managers to keep their people motivated and focused once you've done a layoff.
Fox Business News Correspondent: And Dan, what we have seen recently is that companies are being rewarded for announcing 5-10% job cuts, and that in fact if you don't do it, you're almost looked upon negatively, as to why your costs are so high in a difficult economy. Why is that?
Dan: Well the stocks are looking for anything to move up on, any news, and in this environment where stocks have been moving lower, any job cut means that people thing the company will be saving money and that's looked at as a plus. In a normal environment if the stock price is moving up and they are cutting jobs that's positive as that may mean that management is executing a plan, but right now as it is with the economy down and companies trying to save themselves, they stocks will get little pops, then the regular trend will be down after the initial news, because it still costs money to lay off employees and shut stores, so it's not cost free, so it's more of a long terms plan to keep costs down and keep the company alive in this economy.
Fox Business News Correspondent: What kind of costs are we talking about here? I mean, severance packages, what are we looking at?
Dan: Well for instance, Office Depot is closing stores. You have to pay people to move that merchandise out of the store, you have to pay to clean up that facility. You then have to pay for the severance packages for some of the employees
NPI is a privately-held company that provides assistance for its customers in implementing rigorous processes for making sound spend management decisions. Using a combination of market experts and proprietary methodologies, NPI provides assessments of a variety of traditionally difficult spend management categories – information technology, telecommunications and transportation – to ensure that expenditures and operating expenses are in-line with current market conditions. NPI leads this emerging best practice, offering procurement expertise, a fair market value database and experience from both sides of the table with quality and integrity. For more information, please visit www.npifinancial.com.
