Do employees really matter?

Cheaper by the Dozen
By Paul Herbig

It should astonish me that companies, like people, never seem to learn from the past. And it is true the saying, that by not learning from the past, they are doomed to repeat the sins of the past. But by now, nothing surprises me, either in human behavior, world events or corporate posturing.

This latest episode of corporate forgetfulness comes from Circuit City. A recent Wall Street journal article noted the company has been firing high producers and replacing them with lower paid employees. This is being done in the disguise of a cost cutting effort. Once again the accountants and cost control agents are at the forefront of corporate strategy: being penny wise and pound foolish. According to the theory of human economics Circuit City must subscribe to, all people are created equal and are just as replaceable by another person: all persons are the same.

Circuit City must not have read the history books. Years ago, Sears, in one of many moves that contributed to its decline, decided to replace all its professional, skilled, full-time, experienced (some with twenty years or more) store personnel with part-time clerks. Obviously it subscribed to the same philosophy Circuit City’s accountants believe. The result? Certainly payroll costs decreased. In that respect, the accountants and finance people patted each other on the back. . . until they looked at the other side of the ledger to find revenues and reputation decreased even more rapidly. And they wondered why.

Why would a customer travel to a mall to visit a Sears store instead of another store nearer his/her residence? Perhaps it had to do with the fact that the skilled professionals knew where all of the products were in a department, could recite advantages and disadvantages for all the products, and provide an intelligent recommendation on which product would be best for each customer’s individual need. The customer, almost always being satisfied with having the problem corrected appropriately, would in turn return to the store and oftentimes visit the very same salesperson for further problem-solving sessions in the years to come. The customer was happy; the Professional Salespersons prospered; and Sears thrived for decades as “The Place America shopped.” The service, the assistance, the problem-solving, all these were intangibles that did not show up on the balance sheet while the higher salaries and benefits were costs that were painfully obvious and which, eventually, went.

So what happened? The next time the regular customer came to the store and asked for Bill or Ted or Sue, his knowledgeable experienced salesperson, low-cost Ralph or John or Emily (according to what time of day) came in their place. True, Ralph, John, and Emily cost half as much or less and being part-time did not require fringe benefits. However, if they knew where products were, they thought themselves competent. The customer received little help nor input from the new part-time clerks on their problems (“Hey, I just ring up the sales. If you have questions call this 800 number or read this booklet for 12.50 more or search this email site” ) The customers thought to themselves, “I can get this lousy of service far cheaper closer to home so why come here?” or “Home Depot or XYZ will still answer questions and help me so I am going there to get my problem solved.” Customers do not buy products, they buy solutions to their problems. When Sears could no longer provide solutions, merely products, Sears’ decline quickened.

Circuit City look out. You have just cut off your nose to spite your face. What advantages do you offer customers now? Why should they come to your store instead of another? Before you could offer service and knowledge, now what do you offer? Price? Price is the easiest item to copy. Be prepared for a mild customer exodus. You also should not be surprised when many of your customers find out where their friendly professional went and begin to frequent those stores instead of yours. Relationships and Service is where it is all at and you have just thrown yourself back fifty years.

WalMart is attempting the same manuver: replacing high pay employees with cheaper ones. The result will be the same: less knowledge, less service, less commitment. But because WalMart thrives on price, it might survive. But at what cost its cost-cutting? Employees will believe there is no future at the store if their only reward for success is being replaced. Employee productivity will decrease. Employee spirit will disappear. And employees will use WalMart as a stepping stone to another job. Sure, they will have cheap labor but they will also get all the trials and tribulations associated with cheap labor.

People are not cogs that are easily replaced. This is not the assembly line of Henry Ford or Taylor’s. By cutting costs by replacing the most productive (and hence expensive) personnel, you have lost years of knowledge, relationships, corporate history and culture, experience and productivity. Even bean counters should understand if they replace person A for person B for 1/3 the price and received 1/4 the output, it is not a winning situation. But they don’t read history. Perhaps they need to.