Raising Your Sights

This case analysis shows the benefit of the headcount solution. Planning ahead for three rounds of cost cutting, rather than just instituting a massive layoff, allowed the manager to layoff only 125 employees. If he had gone directly to layoffs, he would have had to involuntarily terminate over 250 people to cut $15.95 million in costs.

There will always be situations where labor is relatively inexpensive and easily replaceable and where it makes sense to treat labor simply as a short-term cost. In these circumstances, the headcount solution might not be feasible when a business is in trouble or faces a downturn in a business cycle. Increasingly, however, the economics in settings such as technology, professional services, pharmaceuticals, and lean manufacturing is characterized by investment in human capital. Again, this is where skills remain scarce and in demand, and the company must make a substantial investment in skills and competencies. In these situations, basic economics will force leaders to raise their sights and consider labor not as a cost, but rather as an investment.