Business systemics LO5727

Rol Fessenden (
19 Feb 96 20:30:10 EST

In response to Equity Issue LO5693 -- Scott Cypher LO & Big Layoffs LO5677
-- Johanna Rothman LO & Big Layoffs LO5586 -- Charles Perry Shift to
Seeing Systems LO5699 -- Roxanne Abbas David Reed & Others

I am struggling with two themes at the same time. One is the Goldratt
theme that companies can always grow sales, and these are not necessarily
at the expense of others. Thus they do not cause sales declines elsewhere
in the universe. The second is the assumption that layoffs are -- I guess
-- to be avoided. They are a cost of poor quality. A company can avoid
them by taking appropriate contingency actions.

Johanna asks me to read the books, and I ask back -- how does the market
size grow? In my view -- admittedely limited -- the market does not
change dramatically from day to day. If I decide to buy a computer, I
simultaneously decide to cut back on apparel, car, and furniture
purchases. If as a retailer I sell one additional shirt to a Chinese
citizen, then I have taken demand from another company because that
citizen had a clearly defined fixed amount of disposable income. Help e
out here, Johanna. I am stuck. Even if I discover a brand new market --
let's say for pants -- I think I must be taking demand from another
company because ther total demand in the world is pretty much fixed.

I have been on both sides of the issue of layoffs. I think this is a very
difficult issue. I hear some people saying that corporations should be
able to foresee changes in market and be prepared for them. For example,
in today's paper, GM is preparing to both lay off workers, and offer
incentives to purchasers. This is because sales are far below

Also in last week's Economist there is an article on General Magic, a
company whose stock -- and prospects -- have plummeted. Why? Because a
competitor, Sun Microsystems, had a better idea in its new software
language, Java. General Magic has not as yet laid off anyone to my
knowledge, but the likelihood is they will soon. It is hard to see how in
this instance, they might have done differently. Someone else had a
better idea. That is what the marketplace is al about.

AT&T has also been discussed here. My understanding is that as a last
resort, they have chosen to lay off many people that they have not been
able to put to productive work. This, after a period of 14 (?) years
since they became demonopolized.

Someone has asked how can the stock market raise the value of a company
that is letting go its assets (people). I think the answer is that those
people were not productive enough -- as established by the competition and
the marketplace.

Another person asked why the lower levels were laid off when they had no
control over the situation. The short answer is that they are the easiest
to replace when business returns. The reason they are the easiest to
replace is they are the least educated. The cost of education is very
high. The reason they are the least educated? Don't know.

However, if one wishes to have more control over their lives, and avoid
dislocations that are outside their control, choose more education. Make
yourself hard and expensive to replace.

A question raised was why are the ones responsible for the business
shortfall not laid off instead. There are two components to the answer.
First, they are. However, because they represent very few people, no one
notices. For example Michael Spindler and his Chairman (name escapes me)
were fired. The new guy will undoubtedly let more people at the higher
levels go. However, except for the business press, it won't be reported.
Can you imagine the headlines? "apple lays off 12". The press does not
report it.

The second answer is that some people do not get laid off, and it is
because they are hard to replace, and because it is widely perceived that
the problems were systemic, and not within their control. You can see
that at GM, General Magic, and so forth.

In summary, where are we? I hope someone can give a credible reason why
demand can increase without causing a decline in another company. The
jury is out on layoffs. Some -- I know of no research that describes how
much -- is generated by arbitrary cost reduction goals. Another chunk is
a result of another company or business stealing market. Some is caused
by increased efficiencies.

In principle, increased efficiencies at Boeing for example, could free
welders to allow Boeing to go into the shipbuilding business. The reality
is Boeing has its hands full trying to make money in the airplane
business. They are -- my opinion only -- better off to let those people
go so they can work for Bath Iron Works, who already knows how to build
fine ships.

I look forward to much feedback.

 Rol Fessenden
 LL Bean

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