In The 1990S, Layoffs Become A Business Strategy

At Applied Materials in California's Silicon Valley, laying off workers has become almost as routine as dumping old hardware.

The manufacturer of chip-making equipment fired 2,000 employees in August, three months after firing 1,500.

Applied Materials is hardly alone. U.S. companies announced in October plans to cut 91,500 jobs, the most in nearly three years. In the first 10 months of this year, job cuts totaled 523,000, nearly all of them domestic. That's 200,000 more than the number of jobs eliminated in the same period last year, according to Challenger, Gray & Christmas, a Chicago outplacement firm that tracks job cuts.

The Challenger numbers show that downsizing continues unabated even though the unemployment rate has remained less than 5 percent for 16 consecutive months.

For many corporations, downsizing has become a strategy that is used in good times and bad. Senior managers, under pressure from stockholders to increase profits, often take the easiest way by cutting employment costs.

"Because of pressures from Wall Street, companies are paying unprecedented attention to their bottom line," said Diane Swonk, deputy chief economist at Bank One in Chicago. "Companies are being asked to produce not just good profits but extraordinary profits."

Like at Applied Materials, which - two weeks before the August job cuts - reported profit of "only" $70 million for its third quarter this year, down from $145 million for the same period in 1997. Even in the best of times, the Santa Clara, Calif., company has sent workers home. In 1996, the company fired nearly 10 percent of its work force, despite a record profit of $600 million.

Applied's periodic layoffs are consistent with an industry that practices just-in-time employment, according to Jeffrey Pfeffer, a Stanford University management professor who has studied hirings and firings by semiconductor makers.

"There are some companies that wouldn't hold workers one minute more than they're needed," Pfeffer said. "They will hold inventories of goods for a long time, but they don't want to hold inventories of people."

A poll released in September by Shell Oil found that more than half of all working Americans have been downsized, have worked for a company that has merged or been bought out, or have moved to a different city because of their job.

That might explain why workers' commitment to their employers is declining. More than half of U.S. workers - 55 percent - said they would switch their jobs for a pay increase of 20 percent or less, according to a survey of 2,020 workers conducted by Aon Consulting, a unit of Chicago insurance company Aon Corp.

And many workers are figuring out that the best defense to a layoff announcement is having another job lined up.

Despite sustained economic growth, 3.6 million workers were laid off during the two years ended December 1997, from jobs they had held for at least three years, according to the Bureau of Labor Statistics.

The layoffs over the last several months have involved companies ranging from oil companies to pharmaceutical manufacturers to brokerage houses. Among them are Boeing (48,000 jobs), Callaway Golf

(700), Arco (900), Monsanto (3,500), Merrill Lynch (3,400), Gillette (4,700) and Raytheon (14,000).

Experts say they're surprised that so many companies are using layoffs as a first resort, especially since studies have shown that downsizing alone doesn't achieve the desired results.

Companies in the Standard & Poor's 500 that merely eliminated jobs from 1980 to 1994 suffered long-term losses to profits and stock prices, according to research conducted by Wayne Cascio, a University of Colorado management professor.

The same research revealed that the most profitable companies were the ones that produced new revenue by increasing staff and other assets, developing new products and entering new markets.

"The bottom line is you have to grow your business," Cascio said. "You can't shrink your way into profitability."

"Downsizings often lead firms into downward spirals," said Theresa Welbourne, a professor in human resources policy at Cornell University, because "your high performers seek out other jobs, (and) that eventually has an impact on the company's earnings."

Ask Michael Pachter, who until a few months ago was Arco's director of strategic planning. Last April, when Pachter heard rumors that the oil company was laying off people and offering buyouts, he volunteered to leave for "a handsome severance." He got it.

Pachter, 42, has since taken his MBA, his two law degrees and his 16 years of Arco experience to his new employer, a mergers-and-acquisition firm in Seal Beach, Calif. The new job pays twice the "high-$100,000s" he earned at Arco.

He said the layoffs taught him a valuable lesson.

"The layoffs at Arco certainly tell you all you need to know about loyalty: that you should watch out for yourself and not count on corporations to take care of you."

--------------------- The no-layoffs lesson ---------------------

In six decades, Lincoln Electric, a Cleveland company that makes industrial electric motors and arc-welding products, has not laid off a single worker.

Richard Sabo, who is heading a Year 2000 communications project at the company, shakes his head as he reads almost daily news reports about layoffs.

"There must be a better way," he said.

Lincoln won't fire workers, Sabo said, because it would take supervisors as long as three years to train new people.

In bad times, Lincoln reduces work hours, reassigns workers to other departments and, as a last resort, freezes all hiring. In good times, the company uses overtime to handle an increased workload.

And Lincoln executives say they don't have to worry about cutting workers to please Wall Street analysts. Shareholders have seen the value of their stock increase by almost 42 percent each year since early 1994.