This year 18,000 employees were laid off from Microsoft. This got everyone thinking and talking about downsizing. It’s a specter that looms over announcements of organizational change, especially ones that include the words “restructuring” or “streamlining.” Workforce reductions aren’t good news for the employees getting fired, of course. But what about the companies?
AsCEO Satya Nadella wrote in his email announcement to the company in July, the cuts are part of sweeping changes to the company’s business direction and culture. Absorbing Nokia’s Devices and Services division meant a lot of redundancy to get rid of. Nadella’s email was peppered with words like “lean” and “efficient,” “synergies” and “more agile.” It’s hard to argue with downsizing in the face of those circumstances.
It was a bold stance to take. 78% of Virginia Mason’s costs are labor, so leaving that intact meant serious work was needed everywhere else. Part of Kaplan’s motivation was to get buy-in from the staff. They might not be committed to making the solutions work if, he said, “they might improve themselves right out of a job.”
Inspired by the Toyota Production System, Kaplan and his team created what eventually became the Virginia Mason Production System (VMPS). Focused on cutting waste and improving process, this philosophy still guides the hospital today.
The VMPS worked. Over two years, Virginia Mason saw savings between $12 and 15 million. Productivity increased, and staff whose positions became redundant (remember, they couldn’t be fired) were redeployed within the hospital.
A Letdown In The Long Term?
Virginia Mason’s no-layoff policy paid off for them. It’s too early to tell how Microsoft’s layoff-heavy approach will turn out, but there’s reason to believe that downsizing isn’t a surefire strategy for improving a company’s performance.