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Government, please read: 1980s Business Advice: Control growth; avoid downsizing 2005 Business Advice: Control growth; avoid downsizing Decades before the current wave of downsizing, I was advising clients who had grown unwisely to cut back. One example is a multinational heating-cooling manufacturer for which my advice included selling off its European operation; another example is a Minnesota mechanical contractor whom I guided through thinning his bloated support staff. The manufacturer could easily afford its overseas operation, financially. Its problem was that its U.S. corporate culture did not support working with "foreigners." Whereas some multinationals send executives overseas to widen their horizons, this company's managers felt they were being exiled when sent abroad. The spun-off European operation was glad to be free of "American interference -- caused by misunderstanding, it is true, but interference nevertheless." The contractor had let a few very good years go to his head and had added sales engineers, promotional staff, and clerical help beyond his needs because, he admitted, "It feels good to walk customers and competitors through my 'full house'." As has proved true for many contractors across the country, the company became easier to manage and more profitable when it reduced its annual dollar volume - in this case from close to $4 million to under $2 million over 18 to 24 months. Both the manufacturer and the contractor had permitted their need for "psychological income" to sway their business judgment. The heating-cooling group of the multinational wanted to be perceived as internationally active as other groups within the parent corporation; the contractor wanted to be very visible as a major player in his market area. What often happens during good economic decades, even those with a bad year or two, is that companies grow unthinkingly fat. In my writing, speaking, and consulting over the years I have repeatedly chided:
Much wiser was the Pennsylvania refrigeration contractor who was giving himself an ulcer trying to be chief salesman, office manager, dispatcher, and lead technician with a crew of nine billable employees. I recommended he hire a service manager. He did. Before the agreed probationary period was over, he let go the service manager. Why? "My nature is such that I can't bring myself to tell him what he needs to know to do his job." "You realize you are limiting the company to those six or seven billable employees you can comfortably manage yourself?" I suggested. He agreed. Twelve years later he is successfully operating eleven trucks, having added one clerk and a couple of personal computers. Business advisors have long advised "correct" ratios of support staff-to-billable workers; 1-to-2 is frequently suggested as a minimum. My years of sampling show contractors operating profitably with ratios as low as 1-to-1 and as high as 1-to-6. So much depends on a contractor's work-mix and customer-mix that nonbillable-to-billable ratios do not offer valid comparisons between companies. Instead, I offer a pragmatic guideline: Support staff is too small if it is always too busy; it is too big if it is never too busy. It's the right size when weather or an unusual work-load makes things hectic two or three times a year. There remain slow learners about growth for the sake of growth, for psychological income. Thus, General Motors has recently announced a 5-year program of trimming its admittedly oversized and overlapping chain of showrooms and dealerships. [GM was being chastised decades ago. -- FJV June 2005] Heating-cooling manufacturers for the most part have seemed smarter. Not only have they merged and consolidated; they have also reduced their total number of outlets, whether factory branch or independent distributor. Similar consolidation has taken place at the wholesaler/distributor level, so it is not coincidental that ARW and NHRAW are talking merger again. When downsizing occurs, employers get blamed for cutting jobs. It is forgotten that for years those same employers provided workers with income and communities with taxes. Speaking of communities: During a bad economic period a city manager friend of mine was forced to shut down two fire stations. A few months later he understandably boasted before the city commission that there had been no increase in response time of the fire department. "Our citizens are as safe as ever." "Isn't it possible," I said to him privately, "that when the city had a lot of money you built two more fire stations than you really needed?" The lesson in all this is not that growth is bad, only that one can avoid bad press and psychological trauma by paying attention:
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