'‘Employee’- the Most Valued Asset': Myth or Reality

How much would you agree with the cliché, ‘Employees are the most valued assets of an organisation’?

When an individual takes up a new job and joins an organisation, during the orientation program the HR department almost without fail will convey a message from the CEO, perhaps a pre-recorded video wherein he emphasises how seriously the organisation values its employees.

Subsequently, during the course of our professional life, this is something we hear repeatedly from the senior management and many of us even convey the same to our team members in our roles as their managers.

Such communications naturally build up certain expectations in the minds of the employees. The expectation of long association, of career growth, of stability in life. And the yearning gets stronger when you start liking almost everything about the organisation right from the work culture, the colleagues and the favourable compensation packages.

But nothing is constant in this world. Ugly surprises jump out from nowhere when least expected, be it in personal life or in one’s professional world. Industries go through cycles of good times and bad times, so does the global or local economies. These upheavals bring about drastic change in the strategies of individual organisations in their effort keep their heads above water.

During such an economic or industry specific downturn, companies come under tremendous pressure. Their top line rapidly erodes while the cost of doing business remains high. In order to avoid falling in the dreaded loss-making zone, the management has to initiate quick and drastic cost reduction measures.

The stock market, the investors put pressure to demonstrate efficient handling of the situation, rightfully so because it is their money which has been invested in the company. Urgent action is the call of the moment to arrest the sliding stock price of the company.  So the management draws well thought out plan to handle the situation quickly and effectively.

CEO’s speech in the investor call:

 ‘…….I would also like to reiterate the company’s commitment and continued focus on cost reduction in this challenging time. We have already developed a blueprint for the same which I am going to lay out in front of you today. 

In the coming quarter, we will retrench 2,200 workforces globally which amounts to 10% reduction of our total workforce. Additionally, there are other measures including ………'

This comes as a bolt from the blue and it sets in panic amongst the employees. Speculations become rife about the probable hit list, family members get worried and gloom descends quickly. Within weeks, 2,200 employees are handed over pink slips bringing an abrupt end to their association with the organisation and in the process shattering thousands of dreams!

‘Why me?’

‘How do I pay the EMIs of my home loan and car loan?’

‘How do I take care of the medical expense of my ailing parents?’

‘What do I do now?’

Such questions inundate the mind of each and every terminated employee. They know that in the challenging time ahead they will be all alone to fend for themselves.

I am sure many of the readers going through this post have paused here for a moment to reminisce their own excruciating experience from the past.

A genuine doubt arises in everyone’s mind, ‘Are employees really the most valued assets of an organisation?' And rightfully so!

The general definition of an asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's manufacturing equipment or a patent on a particular technology. Thus technically speaking, employees do not get classified as an asset.

The easiest and fastest executable target for cost reduction for a company is the employee retrenchment. 

The real assets - the machinery, land and buildings take months or even years to sell off whereas employees can be asked to go in as less as one day notice period. So, when the challenging time comes for an organisation they immediately train the gun on the employees to fire at.

While the management of a company goes through the rigour of reducing headcounts, most of the time the surviving ones are not impacted anyway. So, is it a fair process or action? It is often deliberated in various forums - why not go for a salary cut across the board in the entire organisation instead of laying off a certain percentage of unlucky employees? But mostly it is observed that companies prefer to lay off. Perhaps this is a stronger demonstration by the management to the stock market and the investors of their cost reduction initiatives!

Thus it won’t be wrong to say that - ‘Employees are the most valued assets of an organisation’ is one of the most overused statements which does not reflect the reality. Using this sentiment over the years, companies have created a certain incorrect perception in the minds of the employees. To me, it is more of a branding and marketing statement.

I am neither questioning nor challenging the practice of manpower reduction as a major step of cost control by a company. It can’t be judged in isolation as there are so many business variables involved. Sometimes it may be fully justified and in some other occasions in may not be.

However, some retrospection about the practice is definitely required:

(A) Is it really cost effective i.e. does it genuinely bring about increase in profitability of a company in the longer run - not just for the period of the downturn but also when things start looking up subsequently? A company has to spend a substantial amount of money to hire new people, train them and develop synergy for increasing demand for delivery from customers. Has any study been done in this regard for all the sectors in different geographic areas?

(B) Something interesting that I came across on the Website of the Wharton University of Pennsylvania. 

Southwest Airlines, like the rest of its industry peers in the USA, suffered during the Great Recession. "People were not flying as much, so they took their job recruiters — who are typically great with people interaction skills — and instead of laying them off, redeployed them into frontline customer service jobs, which made flying on Southwest a better experience for its customers. And as the economy recovered they transitioned back to their original jobs.”

Though not common, there are other similar impactful examples available globally. So, why not the companies introspect and find out creative and innovative alternatives rather than jumping on to the easy route of employee lay-off? 

(C) When the going is good in terms of business, growth and profitability, there is almost unplanned and uncontrolled recruitment of new employees to meet the workload as the purse strings loosen up. The stringent cost control measures are put in the backburner. When the situation reverses, employees are fired with even more aggression. Why can’t there be a more balanced approach so that the pain for the employees lessen to an extent?  Let us not forget that employee is the only asset (?) that has feelings, emotions, commitment and loyalty, unlike other inert ones. They deserve to be handled with care especially during the adverse situations.

(D) Encouraging employees to go on sabbatical or on long leave without pay for obtaining higher education etc. should be practised by more and more companies, especially during the downturns. Firing employees is the easy-to-resort solution but letting people get back to the organisation after a long hiatus has many benefits for both the sides – employees remain strongly loyal, their performance level goes up after returning, it eliminates the cost of training new hires and also the gestation period before putting the new hires on productive roles. These are facts known to all, but how many companies practise this – that is my concern!

(E) Some serious thinking is advocated in sharing the cost reduction burden of an organisation all the way up to the CEO - be it giving up perks and benefits, accepting a pay cut etc. before getting into a large scale RIF (Reduction In Force) exercise. Does it really sound logical that in the event of a downturn, a certain percentage of employees have to sacrifice their jobs to facilitate cost reduction while the still-employed ones share or absorb none of these? 

In conclusion – if employees are genuinely considered to be the most valued assets of any organisation, then they deserve to be treated like ones. In other words, there is a serious need to evaluate and sincerely exercise other options of cost reduction as primary means so that the most-valued-assets are not junked out overnight.

Picture credit: http://insights.dice.com/

Resource reference: 

1. http://knowledge.wharton.upenn.edu/article/how-layoffs-cost-companies/

2. http://www.investopedia.com/

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