Siting -- Tough Decisions Ahead

Strategic planning should precede layoffs and facility closings.

In a soft economy, layoffs grow. Since the first of the year in the U.S. such marquee names as Motorola Inc., Du Pont & Co., and Cisco Systems Inc. -- one of the revered business models of the new economy -- have cut their work-forces significantly. With lots of uncertainty around, downsizing catches just about everyone's attention. Not the least affected are the executives who have spent much of the last five years happily seizing growth opportunities and who now are charged with the less-enjoyable responsibility of directing downsizing and reconfiguration. How should executives make the difficult decisions of which jobs to eliminate and which facilities to close? The media leave the impression that it's a straightforward numbers game: Simply cut people until the bottom line is acceptable to top executives. But that's not good management. Truth be told, strategic considerations should play major roles as people are being laid off and facilities closed. In other words, you should be plotting where you want the company to be rather than concentrating on where it is today. There are seven strategic issues for you to consider: Vision. How do you expect to be describing your company's core business five years from now? Who and what will you need to make a success of it? Competition. If you were to close a particular facility, what would the impact be if your chief competitor became its new owner? Would the new owner gain a competitive advantage over your company by making a few fundamental changes to the plant that you have been reluctant to make? Productivity. Productivity is about what has happened, but it's also about what can happen. In deciding what to close or whom to lay off, you need to be thinking about the likely quality and availability of future labor supply, worker trainability, and such things as the opportunities to create self-directed work-teams. And keep in mind that a facility that's running productively today and looks like a "keeper" may not serve tomorrow's needs if there's no room for improvement. Costs. Looking to future demand, what would be the cost of retrofitting the facility? How easy will it be to expand or shrink its capacity? Will closing the plant trigger an environmental cleanup? Have you looked at the residual value questions? For example, be ready for the possibility that the facility may now be worth more to the community as a park than it is to you as a plant site. And the prospect of continuing battles with the neighbors over annoying truck traffic may make disposing of the plant an attractive option. Value. Even as your company is trying to reduce capacity and lower its labor costs, another company may be desperately looking for a way to expand capacity to meet growing customer demands. The fact is that a well-located plant with a quality workforce may be one of your company's more liquid assets, and one having more value to another company than to yours. Politics. Thinking about the future should cause you to think about the past. What were the details of the deals that brought you to the site in the first place? Or the ones that later allowed you to expand? You may find that required repayments may exceed the value of the initial incentives. Similarly, you may find that closing the facility may jeopardize your eligibility for future contracts, trigger regulatory reviews, or cause other unpleasantness to surface. Image. If your company is one of the biggest or most important employers in town, you need to be thinking about the impact of your departure on the community. Will you be vilified? What will be the cost of lost goodwill? Getting your good name back could very well be difficult if employees, the community, customers, and shareholders feel betrayed. Remember this lesson from baseball: Brooklyn still hasn't forgiven the Dodgers. Da Bums. James A. Schriner, based in New York, leads Corporate Real Estate strategies for Fantus, a Deloitte & Touche LLP practice unit.

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