How can companies best navigate the people issues – more specifically, headcount reduction – when it comes to new automation that in the end really depends on those moves to deliver the ROI?
It’s often the proverbial “elephant in the room” when it comes to new initiatives and achieving the expected results. And it’s a tough question.
It comes to mind after an interesting discussion I had with Raj Kumar of Kurt Salmon Associates this week in relation to our upcoming Workforce Management Videocast Series, as he discussed the challenge of turning productivity gains in a distribution center into true bottom line benefits.
| Gilmore Says:
"Then I asked if the local transportation managers were still there. Well, yes, but mostly doing other things, was the response. So did the company actually save any money, or not?"
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In presentations by software and automation vendors, it has almost become a cliché that when they talk about the productivity improvements that will be achieved by their solutions, the suggestion is that employees in these areas now supercharged with productivity will be moved to “more value-added work” or something of the sort.
Many years ago, I was in a group that made a presentation to our president on a plan to outsource a small bit of software work that would reduce the need for about five programmers, for which we calculated the savings. But the president said, “Are these people really disappearing from the payroll, or are we just moving them somewhere else? I hear all these plans that are going to generate savings, but the headcount never goes down.”
For which we didn’t have a great answer.
It seems we are in an era now where it is relatively easy (or at least easier than in the past) to shutter whole factories or outsource large functional areas or processes, but still (understandably) very difficult to do at a more micro-level.
In many cases, things are a little easier in distribution, where for lots of companies turnover is quite high, often approaching 50%. It would seem in many cases that no one should fear automation from a headcount reduction issue, since the core group of associates that don’t turn wouldn’t nornally be effected even if total headcount is reduced.
It’s also easy, in a sense, for fast growing companies. Often, investments again say in DC automation are not sold or justified on the basis of reducing current headcount, but on slowing or stopping the growth in headcount versus projected requirements based on expected throughput growth over some period of years.
Sometimes the growth happens – but sometimes it doesn’t.
I spoke earlier this year with a VP of transportation for an industrial company that had recently moved from a decentralized transportation operation to a centralized one. Each of several dozen ship sites previously had local transportation managers; now a much smaller central group was managing the whole process enterprise wide, and the efficiency gains in overhead for transportation were significant.
Then I asked if the local transportation managers were still there. Well, yes, but mostly doing other things, was the response.
So did the company actually save any money, or not?
I don’t want anyone to think I’m in favor of firings. I’m writing this just because it is such a tough issue – the elephant in the room – that frankly we often dance around when it comes to investments in process improvement. I’ve see other cases where fear or concern on the people impact has kept companies from investing in automation or technology that would reduce headcount requirements, blue collar or white collar. We all have. And I am not sure what the answer is.
On one hand, it isn’t right to make investments based on theoretical cost improvements that in reality never really show up on the company books; or to too strongly resist clear opportunities for process improvement in this hyper-competitive market environment. On the other hand, how do you keep morale and get employees to provide the critical buy-in to the process when the end result might be a RIF for themselves or a co-worker?
Is that why too many of our initiatives don’t deliver? You’re caught either way.
Last year, in our interview with Theory of Constraints founder Dr. Eli Goldratt, he said it’s no wonder employees often resist change.
“They believe the change is likely to hurt them,” Goldratt said. “Sometimes they are wrong because of a lack of information, but usually they are right! Most changes might be right for the company, but are not right for the majority of people from whom they are asking for collaboration. So no wonder there is a lot of resistance.”
So, since this is such a tough issue either way, we often avoid it by making up numbers that don’t reflect what the real savings tally will be in the end. Maybe that’s why the ROI is often so hard to find later on.
Goldratt passionately believes that there is always a way to find a win-win. But will that win-win approach show up on the bottom line?
Life is sure easier when you’re growing fast.
Is the need for true headcount reductions to achieve ROI for automation projects often an “elephant in the room?” Is it possible to navigate the challenge of the need to reduce costs based on investment with treating employees fairly and maintaining support and morale? How has your company handled this issue? Let us know your thoughts at the feedback button below.