Wednesday, April 04, 2007

Circuit City: Layoff Circuits on Overload

A week or so ago, the layoff circuits started to light up at Circuit City, which announced that it shedding over 3,000 store workers and replacing them new hires making a lot less. After a 10 week hiatus, old workers would be able to reapply for positions, but at the new lower rate.

I wouldn't say that I exactly frequent Circuit City, but there is one located somewhat conveniently and I do shop there. While the service can be erratic, there is a pretty good chance that you'll actually find someone both knowledgeable and helpful.

Presumably, these are among the higher paid folks in the Circuit City workforce, who were, in fact adding more value than the lower priced newbie.

Some are questioning the strategy. An AP article on the layoffs noted that these lay-offs could cause morale to plummet and keep customers away.

...[K]nowledgeable customer service is one of the few ways Circuit City can tackle competitors that include Wal-Mart Stores Inc., they [analysts and economists] say.

"This strategy strikes me as being quite cold," said Bernard Baumohl, executive director of The Economic Outlook Group. "I don't think it's in the best interest of Circuit City as a whole."

Quite cold.


And maybe even bad business.

Circuit City's cuts come at a time when other retailers are trying to put more knowledgeable workers on store floors. Home Depot Inc., whose new chief executive is struggling to re-ignite sales growth at its stores, said it has raised pay to attract skilled tradespeople, such as carpenters and electricians.

Home Depot is adding 15,000 new jobs this year, according to spokesman Jerry Shields.

Back in the day, when I was poring over employee lists trying to figure out who to axe, we almost always came down on the side of saving the more experienced workers, even though it often meant having to lay-off a couple of lower paid juniors.

The reasoning was always that, if you were going to have a skeleton staff, you needed to make sure that you had people who could do everything from the entry level jobs on up. Junior folks were for the good times, when you were growing, when you needed to bring people along, when you had the luxury of encouraging senior folks to mentor the newbies.

We'll see what happens at Circuit City in terms of what sorts of productivity hit they'll get given the departure of their more knowledgeable workers.

The "market wage" argument seems, on surface, completely compelling, but if you think about it for a while it is, of course, part and parcel with the overall race-to-the-bottom mentality of the overall economy: race-to-the-bottom prices, race-to-the-bottom wages. Where does it end? Will Xtreme capitalism reach the point where there's a narrow wealthy strata, a small artisanal group beneath, and the rest of mankind undercutting each other so that they can have some modicum of income. (Enough to buy all that great cheap stuff over at WalMart.)

Years ago, the small company I worked for was acquired by a larger company. Our parent was a real believer in paying wages at the market mid-point. If you got way above that point, you could stay at the same level and receive zero to minimal merit salary increases until your salary got more into alignment. (If the overall market went up, you got the general market markup raise. I don't recall if there was any thought given to the idea of the market wage actually going down.) Or you could go for a job in a different category with a higher pay scale.

This struck me as a relatively sane and humane way to deal with "overpaid" workers.

Over on the new Harvard Business School Press Online (at least that's what I think the blog's name is), Paul Michelman asks whether the Circuit City strategy is "an NFL-like approach to layoffs".

In the NFL, it's not uncommon for a team to cut a highly-paid player -- usually an aging veteran -- only to re-sign him at a lesser salary. The player may not be thrilled, but he's still employed and, let's face it, he's still well paid.

Now, Circuit City is rolling out a plan that bears some potential similarities -- albeit applied to a workforce that’s not exactly in the pro athlete’s tax bracket.

Michelman wondered about the impact of these types of cuts, and talked about the need for "toxic handlers" (a term he cites as the province of Peter Frost and Sandra Robinson):

...those managers who voluntarily shoulder the sadness, frustration, bitterness, and anger of others so that high-quality work continues to get done during difficult times.

Well, all those times I was a "toxic handler" and I didn't even know there was a name for it.

My career was spent in high tech, largely in companies that got into the once-a-quarter-every-quarter lay-off cycles that just seem to perpetuate themselves and never seem to work. The toxicity present in these environments is profound. So much energy goes into trying to figure out what the magnitude of the lay-off will be, what groups will be affected, what levels, what positions, what locations. What will the package be? When will we hear officially? Who's still here? Who's gone?

I suspect that Circuit City will need plenty of toxic handlers.  But it's also likely that they've gotten rid of some of those who, because of their experience and maturity, are best equipped to fill the function. Some of them will, no doubt, drift back in once their 10 week "grace period" is up and get their job back at a lower rate. Talk about toxicity. Circuit City is pretty much telling its employees that their knowledge and experience doesn't translate into any value to the company.

Quite cold. Quite cold, indeed.


Timothy Totten said...

It seems cruel to me to ask a worker to take ten weeks off before hiring him/her back at a substantially lower wage. And I'm a business owner!
The more sensible approach (at least to me) would be to ask the employees to continue on at a lower salary. But of course, this wouldn't allow management to be picky about who stays and who goes.
Unfortunately, the ten week time frame means the good employees (at least the ones who were willing to take the pay cut) will probably have already gotten jobs elsewhere, because, let's face it, people like hiring good employees. So Circuit City will be left with the prospect of hiring new, cheap employees or rehiring cheap, bad employees.
Why not just keep the good ones you've got and fire the bad ones?

ManagementSoul said...

The reason this happens is that cost is a left-brain operation, evaluating experience is a right-brain operation. Management, especially American managment far values left-brain analytical demonstration and results. It's far quicker to do, hence appealing to the short-term mentality.

To evaluate each person's experience and value to the company is a right-brain activity that's far harder to do, far harder to boil down to numbers, and more time-consuming.

It doesn't matter if the execution of the layoffs costs the company its own existence. By that time, CEO's like Schoonover have collected their millions.

America nowadays is all about expediency. So the message sent to workers is find ways to accumulate money fast, left brain if you must. That way you can enjoy your right brain life away from the job, especially if you've amassed enough to never be dependent on soulless corporations ever again.

Rick said...

This is especially stupid, because at Circuit City, what does "experience" mean? The ability to talk the buyer of some electronic product into buying the wildly overpriced warranty service, which is where CC makes most of its money. The less experienced staff may know just as much about the TV sets, iPods, what have you, but haven't yet learned how to coerce the customer into also buying something unwanted and mostly useless. Watch management be surprised by the margin squeeze at the next earnings report.

Allen Liff said...

Yes, Circuit City's actions are both inhumane and stupid from a business management perspective.

There's a biting satire about the layoffs at The Cantankerous Consultant at:

CreditBoss said...

Well, Circuit City, is looking to hire a Walmart type employee. Little knowledge and often times with teeth missing, because of low pay and no Dental Plan.
Circuit City, is just following the George Bush Doctrine, "Those who have nothing, shall have less"

Anonymous said...

I was laid off at circuit city and now have been rehired. I make more than I did before because the company couldn't survive with the 7.50p/h employee. Funny isn't it. The letter that was sent to me begging recently laid off employees to come back is on my refridgerator.

Anonymous said...

I found your blog very interesting. You are talking here about Circuit City. I have found out everything about the company from Besides, I read consumer reports on the products and services of the company. I must say – very few positive reviews. Most people are not satisfied with the Circuit City, however it is one of the largest consumer electronics retailers in the United States.

Aria Kerry said...

To evaluate each person's experience and value to the company is a right-brain activity that's far harder to do, far harder to boil down to numbers, and more time-consuming.

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Circuit City's actions are both inhumane and stupid from a business management perspective.

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