The 1,200 job cuts that the National Australia Bank made in recent months was not enough to prevent a 15.5% fall in net profit for the first half of this year. CEO Cameron Clyne, flagged more as he announced the result yesterday.
The same day, dairy company Murray Goulburn, announced plans to sack 12% of its workforce. Optus is cutting 750; Toyota cut 350.
Reducing payroll reduces costs, but can also reduce performance as the remaining employees struggle to cope with increased workloads, “survivor guilt” and “disengagement”.
Get business news first
Sign up to SmartCompany’s daily newsletter
An engaged employee – one who is willing to contribute discretionary effort – is one of the best way to create customer intimacy and loyalty, according to Randy Slechta, the CEO of the Leadership Management International Group, (LMI), a global training organisation.
“Disengaged employees reduce customer loyalty by 14%. They drive customers away,” Slechta told 150 participants at a recent seminar in Melbourne, quoting from an array of data and surveys including the most recent IBM CEO survey, and LMA’s own annual LEAP survey.
“Engaged employees, on the other hand, increase customer loyalty by 71%. It is the difference between companies surviving or not.”
However, employee engagement today is worse than it was during the global financial crisis (GFC). “Companies have not tried to re-engage employees since making staff cuts during the GFC,” he said.
And now there are further rounds of job cuts as the global uncertainty continues.
As the pace of change accelerates, and companies struggle to “shock-proof” themselves, chief executive officers want, above all other things, to get intimate with their customers, Slechta says, which is why they need to engage their staff.
Enter the middle and frontline managers.
Staff turnover can be directly attributed to the quality of management, with 80% of people leaving because of a poor relationship with their boss, according to a Saratoga Institute survey of 20,000 exiting staff and executives.
“Here is the key to explaining the difference in performance,” Slechta says. “Managers account for over 22% in the variance in revenue.”
Yet less than one in five leaders really know who their best performing staff are, nor who are their worst performers.
Slechta argues that, to create a nimble company, companies need to improve the clarity of their strategy, and reduce the complexity within their companies. Over the past five decades, companies have increased complexity by 35 times he says, which means they cannot change because it is too complex. “Leaders need to keep the complexity outside their companies,” Slechta said.
The other changes needed – creating a better culture and improving management capability – are achieved by mentoring, coaching, training and development.
Moving management skills from the 25th percentile to the 75th is equivalent to increasing capital by 77%, or increasing labour inputs by 44%, Slechta claims. “In other words, good management impacts productivity the same amount as if one were to add nearly half as much staff,” he said.
“How much more could you accomplish if you had 44% more staff.”
A command-and-control approach to management is ineffective for today’s companies with their service focus. Staff are most likely to stay at a company and be engaged in their work if they feel trusted and respected.
Performance management, on the other hand, has no impact at all on improving business outcomes, he says, even when a big effort is made to improve its application. “Which of you wants to be managed?” he asked participants. “No one wants that. What we want is trust and respect for our abilities.”
People who believe they are gaining skill and experience are seven times more likely to say they are engaged in their work; those who are not growing and developing are 13 times more likely to be disengaged.
However, Australia has one of the lowest spending on training in the world – about 1.5% of payroll according to 2009 ABS statistics. One in three employees will say they have not improved their skills or capacities in the past year.
This article first appeared on LeadingCompany.