Efficiency Backlash: Businesses Find Too Much Downsizing Can Hurt the Bottom Line

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Victor J. Blue / Bloomberg / Getty Images

Pedestrians walk by a Red Lobster restaurant in Times Square in New York City on Sept. 19, 2012.

One national restaurant chain realizes that overburdening its employees hurts sales, as well as the company brand. Will more businesses follow its lead?

In the business world, efficiency is king. The corporate quest to cut salaries and get more out of employees, thereby maximizing profits, is never-ending. At some point, however, increasing the workload on employees backfires. The burden becomes too much for workers to bear, and when employees are overwhelmed and can’t keep up with their duties, it’s just plain bad for business.

Last week, Red Lobster basically admitted that it had crossed the line with the introduction of a policy aimed at increasing efficiency and lowering restaurant costs. In July 2012, the restaurant chain, owned by Orlando-based Darden Restaurants, eliminated the busboy position, demoted many waiters to lower-paid status as “service assistants” and forced the remaining full-fledged servers to increase the number of tables they handled from three to four.

At the time, Red Lobster said the changes were being made after testing showed that diners and restaurant employees alike approved of the new policies. An Orlando Sentinel story published at the time of the switch offered some other perspectives:

‘We’re going to be completely worn out,’ said Bob Meehan, a longtime server at Red Lobster in Lake Worth. ‘It’s definitely going to hurt service.’

Chris Muller, dean of Boston University’s hospitality school, said worker morale will likely suffer. ‘If you don’t like the people you’re working with and for … it’s going to show,’ he said.

(MORE: Why Restaurants Have Been Holding Back on Hiking Menu Prices)

Lo and behold, it appears as if Red Lobster is now acknowledging that these critics may have been on to something. Less than a year after the four-table policy was launched, the company announced it is reversing the decision, and waitstaff will go back to serving three tables at a time. A Red Lobster spokesperson told the Orlando Sentinel that while some customers liked the four-table policy, once it was introduced around the country, “far more folks told us that in some instances, it really turned out to be a barrier to providing that great guest experience.”

If anything, the new policies only hurt sales, which have been sinking at the old-fashioned sit-down chain for months. It’s unclear how much the chain managed to shave off in employee wages during this experiment in efficiency. But obviously it wasn’t enough to justify the damage it was doing to the customer experience.

Red Lobster is hardly the only national company that could be doing internal damage by asking too much of employees, or by just not hiring enough of them. In recent months, a series of stories in Bloomberg and other outlets has been chronicling Walmart’s problems with empty shelves in stores around the nation. Customers and Walmart employees alike are making the case that store managers keep staffing levels too low to restock shelves while also manning cash registers and tending to other duties. The result is often a backlog of merchandise in the back of stores, empty shelves and long lines — all of which are bad for business.

(MORE: Hey Walmart, It’s Hard to Make Sales When Store Shelves Are Empty)

In early April, workers at fast-food chains such as McDonald’s, Burger King, KFC and Domino’s Pizza held public demonstrations across New York City in protest of poor wages. Not long after that, the Wall Street Journal revealed that in a webcast held for McDonald’s franchise owners, a company executive admitted that “service is broken” at restaurant locations, with an increase in complaints about the speed of service and “rude or unprofessional employees.”

While JCPenney in the Ron Johnson era has faced many self-inflicted problems — most obviously alienating its coupon-loving core customers — many observers have also pointed out that the fading department store has been abandoned by shoppers because there just aren’t enough workers to offer customer assistance. The retailer reportedly laid off more than 40,000 workers in 2012.

The Los Angeles Times recently explored the idea that because of continued high unemployment and the increasingly competitive nature of the business world, employees will be expected to do more and get less (including less security) indefinitely:

‘Wages are stagnant, jobs are less secure, work is more intense — it’s a much tougher world,’ said Paul Osterman, co-director of the MIT Sloan Institute for Work and Employment Research. ‘Employers have become much more aggressive about restructuring work in ways that push for higher levels of productivity.’

(MORE: Attention JCPenney Shoppers, Look Out for the Return of ‘Sales Galore’)

One of Osterman’s MIT colleagues, Zeynep Ton in the Sloan School of Management, explained to the Atlantic that many businesses “start with this philosophy of seeing employees as a cost to be minimized.” That, in turn, can lead to understaffing, high employee turnover, poor customer experience and dwindling sales. On the other hand, Ton pointed to stores such as Trader Joe’s, QuickTrip and Costco, which “start with the mentality of seeing employees as assets to be maximized.” They pay employees higher wages and offer better benefits than their competitors, and it appears to be money well spent, with higher sales per square foot of retail space.

Sound like pretty efficient operations.

41 comments
TyroneSmith
TyroneSmith

Multimillionaire and billionaire bosses think there are too many tenaire wags slaves, and they don't work hard enough, so they lay off half and give themselves bonuses for being so clever. This society is ripe for a major upheaval.

microsciences
microsciences

After almost 40 years in the world of business, it still amazes me how shocked senior level managers are when you tell them their most important asset is their people. the cost of turnover is far greater than quantitative measurement in dollars. A business with employees that continually look over their shoulder expecting punishment or dismissal as part of their daily work load are drain on the business. To mis value employees is as much a disservice to shareholders as poor inventory management and bad deals.     

HazeAndDrizzle
HazeAndDrizzle

Let's face many companies take the ironic attitude that employees are their greatest liability. Make that 100% for those who worship at the alter of "share holder value". Which is odd considering that these employees are the only people in the entire enterprise who  actually produce whatever value the company is truly worth as opposed to manipulating abstract accounting number or passive investors speculating on stock price. The only people. So when they are abused, the owners and speculators appear confused.

Perhaps they need to go back to economics 101. Because abuse the employees enough and nobody gets anything. Well, actually senior management gets magnificence golden parachutes and stock speculators who go short can make out like the bandits they are. In other words, reward of the guilty and punishment of the virtuous.  It's almost enough to make you question the market systems as much the doubt induced by the penalty free mega-criminal behavior of big Banks.

PoppaCharlie
PoppaCharlie

I've voted with my feet a bunch of times and have had little cause for regret.  Lousy or indifferent service I do not need.  There are plenty of businesses that still remember that their customers are important - and it is their employees that keep us coming back.  If the greedy CEO dies, he dies.  No loss.

graybill.dan
graybill.dan

Here's a tip:  Don't eat out.  Expensive and fattening foods.   Second tip:  Buy from Amazon.  Great customer service. 

sincityq
sincityq

Businesses across the board of long since forgotten that the consumer keeps them going and their employees are the people the consumer see. They overwork and underpay their employees and now with companies like CVS using health insurance to intrude into the private lives of those who work for them, just exactly what... should the consumer expect? Happy people behind the counter?

We're slowly learning how to, once again, teach a tough lesson to businesses who disregard their employees and customers by simply not shopping with them.

swcowan3
swcowan3

How come it's always the front line employees who get cut/overworked/insulted?  Why not top managers?  I get tired of hearing of companies filing for bankruptcy when their CEOs are getting paid multimillion salaries.  It's ridiculous, but when are the boards going to grow a backbone?  Probably about the same time Congress gets business accomplished!!!

Leftcoastrocky
Leftcoastrocky

"Darden Restaurants, eliminated the busboy position, demoted many waiters to lower-paid status as “service assistants” and forced the remaining full-fledged servers to increase the number of tables they handled from three to four."


Service will obviously suffer as will business.  "Penny wise and pound foolish."


Darden should try small cut-backs first.



tocharian
tocharian

Oh well, "vampire squids" on Wall Street, such as "Llord Bankenstein", do not have to shop at WalMart or JCPenney. They alsodon't often go ro Red Lobster for dinner, so they? So it's just the "muppets" (or the 99%) that gets hit.  

Big Business is not where the people are and Real Money cannot be made on Main Street anymore.

moviedemon
moviedemon

"A Red Lobster spokesperson told the Orlando Sentinel that while some customers liked the four-tables policy..."

Let me get this straight - somebody actually said, "I like it when my server has to wait on four tables at a time, instead of three. That is so much better."  What a steaming pile of BS.

valentine.godoflove
valentine.godoflove

glennra3

OBVIOUSLY.......my moronic friend......you did not get the metaphor.....obviously ....you are one of the new ill informed public....a young monkey.....lol.....lol

valentine, comedian.....The Baboon....Mandrilll....a superior monkey....lol

valentine.godoflove
valentine.godoflove

The question should be......." WHY CAN'T THE GOVERNMENT DOWNSIZE IT'S BUREAUCRACY ????????????????"

valentine, world historian

rayjjo1492
rayjjo1492

On the plus side.John Plant, CEO of TRW makes $12,600/hr and froze any raises to all its employees.

antonmarq
antonmarq

Not only show these waiters asked for a 100% increase, they should also ask for medical  education and retirement benefits; otherwise, let that business fail. The same should be done with all businesses who believe that they can subjugate people for a few measly dollars to its owners.  

MikeCompton
MikeCompton

The owners of Red Lobster are notoriously hyper-political hard-right conservatives. 

It's really shameful that they saw nothing at all immoral about screwing over their employees in the ways outlined in this article. These people already don't make enough to rise above the poverty line even working MORE than full time.

Do people seriously think a country can survive when full time work doesn't provide enough for a single person to survive? Forget about a thriving family... Most of these jobs won't keep you in an efficiency apartment (assuming one also requires food to eat)

The right-wing rank-and-file belief that ANYTHING the wealthy do is perfectly fine and dandy is not only antithetical to everything this country stands for (or used to), it's absolutely suicidal. They're actively working to destroy this country from within... All for the benefit of an international wealthy class that knows no border or national allegiance. It's mind-boggling.

 They're proud to be serfs, and always - always - ready, willing, and more than able to leap to the defense of their baronial masters in the castle. 

Until the American People actually start to respect and care about the American People (as opposed to caring exclusively about an economic class to which they will never belong), we're doomed.

These 'libertarian' laissez faire chuckleheads are gonna laugh their way into a revolution before too long. Not the fake 'let's get dressed up in colonial period garb and shout at people' version of revolution, but the real kind... The kind that breaks all at once, almost overnight, with little to no coordination of any kind. The kind NONE of us want to see, or have become necessary

glennra3
glennra3

Union membership has gone from over 30% of the population in the 1950s - the decade of greatest prosperity in this nation's history - to under 12% today. Middle class wages have been shrinking since the 1970s (the decline has been partially masked by the entry of women into the workforce). The Pew Research Center recently reported that the American middle class has suffered its worst decade in modern history.


But, we no longer need unions, right?  Management will look out for the best interest of their workers, so no worries.


I am astounded at how time and time again the American people continue to vote against their own best interest.  

seizeabe
seizeabe

While in the previous few decades, the income and wealth of the top few grew by anywhere between 250% to 400%, the bottom 90%+ declined.

The top 20% own 80% of the national asset.

1 in 6 American lives in poverty.

Incomes for the ordinary folk has declined.

At the same time, cost of food, housing, healthcare, education, gas has skyrocketed. Gas that cost $1.25 is now $3.75.

Top executives pay is around 380 times that of the average employee.

The ordinary citizen is just able to subsist at best.

That means, the ordinary citizen cannot buy anything.

Children will not be able to go to college.

Children will not be able to afford computers for studies.

Families will not be able to eat out or afford vacations.

Ordinary citizens cannot afford new cars or electronics.

When ordinary citizens cannot afford to buy things, sales will drop.

When sales drops, people who sell products are not needed.

Is it any wonder that the vicious downward cycle is what is downsizing.

The greed of the corporates, banks, mortgage institutions, wallstreet and rich is what is the underlying cause.

The 2008 recession has awakened the need for careful and responsible living in ordinary citizens. New cars, electronics and lavish living is a thing of the past. While third world countries grow at above 6%, America is languishing at around 1%. All the greed of the corporates and rich can only result in downsizing.

DeweySayenoff
DeweySayenoff

The ONLY excuse for implementing any policy which negatively impacts the workers is to avoid LOSING money.  That doesn't mean making less profit.  It means not breaking even.

But that's not generally what companies do.  They cater to their investors who demand that every quarter, the profits go up.  This is patently unsustainable behavior and a completely irrational goal.  Watching profits slide isn't fun, but until that ink turns red, there's no justification for piling on the employees more work than they can handle while cutting wages.  And even then, the company almost never realizes the massive mistake that is until not only is the red ink flowing, but it's taking the company with it .

If you're in business, and making a profit, leave well enough alone.  You're doing good.  If you want more profit, remember the lessons other companies here are learning: If you mess with the people who are responsible for making your profit in the first place, you're going to get less profit in the end.

contactme
contactme

You survive as a business by either A) playing the miser and wringing every possible cent from the universe, or B) by exercise of innovation, creativity and a dash of individual flair.

Surely nobody needs wasteful living, but I think too much effort toward Option A leads to a miser-able society---pun intended.  Its root cause might be excessive short sighted focus.

Until recently, America has mostly chosen Option B, which I think leads to a society far more rewarding to live in.

So how do we get back there?

SURPRISE:  maybe it's revival of anti-trust aware government, and emergence of Unions 2.0.   I work in an organization that's trying desperately to centralize things nationally; to become too big to fail.  Every day we have less local latitude...less creativity is asked for or tolerated...the pressure to maximize every dollar is ever-escalating.  Salaried staff are being forced to work way over 40 hours/week, doing projects that we know will eliminate some of our own jobs.  

As for our relationships with other companies, just try being a small company and getting a contract thru our burgeoning behemoth system.  Our size is permitting us to dictate crazy payment terms on contracts, which smaller companies wouldn't be able to dictate.

Anti-trust is a well established component of modern, free market economics; one that, like national defense or the justice system, should be overseen and enforced by government.  Unions should be large enough to counter routine pressure to work extraneous hours without pay ("slavery" in 21st century form?) on efforts that are designed to reduce head-count.

Maybe it's time for "back to the future"---made over a bit. 

If not, are we ready for a miser-able future?

KountyKobbler
KountyKobbler

If you have less employees  you have less payroll  but if payroll decreses too much  then you hve less potential customers for the product or service your business provides   thus dropping your bottom line due to turnover in sales.  then again if its down to a George Jetson style job  of pushing a button at a critical moment  to keep busness operating  and a simple automtion process eliminates that job  then the only one working at the plant would be the Main boss  and when he has no secretary to keep his books balanced and appointment log up to date then youd have a real mess

ctrudakennedy
ctrudakennedy

Shopped at both Walmart and Trader Joes yesterday. Walmart was an irritating mess of long lines and surly cashiers. Trader Joes opened up extra registers quickly, stopped their stocking to help me find a product and everyone was cheery. This is not new, however. I remember a similar observation 10 years ago. Unfortunately, I feel service levels are tied to the socio-economic/class of the patrons. The average Walmart consumer has less "say" economically and politically to demand better service, than the typically more affluent and connected Trader Joes patron.

hivemaster
hivemaster

The Great American Disease is that if something is good, more of it is ALWAYS better.

meadowlark
meadowlark

Employees are neither "costs" nor "assets." In spite of the way they are treated by most corporations, they are not commodities to be used up, nor are they resources to be exploited. They are people, human beings who deserved the same fair treatment and respect that the CEO's, CFO's, directors, and the rest of upper management claim they are entitled to. 

TomPiper
TomPiper

I've owned a relatively small company in the technology industry for over 30 years but I've never forgotten my father telling me that you never compete on price. You compete on quality and service.

I don't know what they're teaching in business schools that have American companies believing that cost cutting is the path to prosperity but I can say that it will only work short term.

I can point to several of our bigger clients and observations of American companies that have hurt themselves, possibly for good, by never ending cost cutting especially with workers.

Dell for one, is a prime example of a once high flyer, that's on the skids due to mindless cost cutting. Because of their skimping on quality and quality employees they've lost the energy that comes from high morale employees helping their move to different products and markets.

Ohiolib
Ohiolib

@swcowan3 Simple.  Because the top managers are the ones making the cuts. Who are you gonna cut? Another manager, or a couple janitors at some store you've never even been to?

zeustiak
zeustiak

@swcowan3 

Problem is, in too many cases, the boards are the top managers or are moving between positions.  You think they are going to fire their buddies?  Or remove a position they may want to move into?  

It is a conflict of interest in the most extreme sense.  

microsciences
microsciences

@Leftcoastrocky  

Not one for chain restaurants, I tried Red Lobster a few years ago and was pleased with the quality and service. A visit a few months ago to one in L.A. area was disappointing.   A follow up to an east coast R.L confirmed that the franchise is on a downward slide.  

glennra3
glennra3

@moviedemon 


The same study concluded that in addition to poor service customers also enjoyed longer wait times for a table and poor quality, overpriced food.  


Said an official at Red Lobster, "we're just trying to meet the needs of a certain demographic in the market."

glennra3
glennra3

@valentine.godoflove

It never ceases to amaze me that people who I imagine use the manners their parents taught them in their face-to-face encounters, feel those same manners don't apply when conversing with people on-line.  


Metaphor?  What metaphor?  A metaphor is when your speech is symbolic or not literally applicable to your actual meaning.  Where do you see a metaphor in your direct question?



glennra3
glennra3

@valentine.godoflove 

Why can't the richest, most powerful nation in the history of the world be run out of the back of a hardware store?  


Because we are a big, modern, complicated nation of 314 million people.  This isn't the 16th century.

BobJan
BobJan

@seizeabe you said a mouthful.

 The wealthiest 1% now own 40% of the nation's wealth but paid 20% of all taxes in 2010. So much for the "how much do you want the rich to pay" game. Someday the middle class and lower class will wake up and see that their only way out is to organize and go up against the wealthy and the government who also is in their corner. Say it over and over until you understand that "The Congress is not my friend".

swagger
swagger

@seizeabe i used to scoff at the idea of social classes in america.  now i think it's clear.  we have the owner class, corporate management and government class and the working class.  the wealth gap will insure the decline and fall of the american empire.

TomPiper
TomPiper

@DeweySayenoff I agree wholeheartedly. Part of the problem is executive pay has been tied to share pricing supposedly to align themselves with shareholders.

The problem with all that is the share price of a publicly traded company has little to do with day to day management of the business. Over the long haul it may make a difference in what mergers they can engage in and it may be a yardstick to gauge management's success or failure but those factors should have minor influence on the corporate decision making as to what's good for the company over the long haul.

With executive pay tied to share pricing they know all they have to do is jigger the numbers for a while and their pay goes through the roof. That's an incentive to do what's best for the short term only.

gysgt213
gysgt213

@ctrudakennedy I went to Walmart myself this weekend. Noticed no door greeters and no one checking your receipt when I left. I don't what happen to these people because there are many sections in Walmart manned by no one.

bwweinstein
bwweinstein

@ctrudakennedy The difference between Trader Joe's or Starbucks versus Walmart or Home Depot is striking.  At the first two, there is always someone friendly, helpful and knowledgeable; at the latter, you can search the entire store trying to get help finding an item or a simple question answered. 

MikeCompton
MikeCompton

@TomPiper Great comment, Tom - thanks for taking the time to post it.

 Sadly, if Dell had it to do over again... They probably would.

 Short-term thinking/profit-taking is the order of the day in America 2013. 

'Our' country isn't run by American Citizens that 'pulled themselves up by their bootstraps' and succeeded. It's run by an inheritance class whose only concern is the next fiscal quarter. 

They aren't interested in long-term anything, and they sincerely do not care what happens to the country.  People will undoubtedly think that's hyperbole or an exaggeration but it is the literal truth. The long term health of their companies, their employees, and the country itself are not considerations in their decision making process. 

 As Friedman allegedly said, 'The only responsibility of a corporation is to make profit'; While I hate to agree with Mitt Romney on any level, he was correct - in a way - when he said "Corporations are people my friend". He was correct in that their behavior is determined by the shareholders... Shareholders that belong to an economic class that long ago proved itself to be absolutely sociopathic. 

When a person can work a hard, physical job for 50 to 60 hours a week and still not make enough to even survive, something is very wrong. 

 Somehow, and I truly don't understand how, the inheritance class have convinced the country that when the wealthy seek to extract more and more profit from their businesses and their workers, it's right and proper and good...but when a worker seeks to improve his or her lot in life it's greed, and morally shameful

Their sense of entitlement is staggering. Unless we reimpose limits on their truly insatiable greed, our country will not survive.

KountyKobbler
KountyKobbler

@TomPiper So many are a commodity based idea  when you compare quality  and method of manufacture   did  they do friction fit or  is it a threaded  end that mounts  to be slip resistant?  is it put together with screws and not plastic welding  that has a limited life  and is not intended to be disassembled and repaired? Perfect example is a light socket replacement for a lamp some use brass eyelets in place of screws to hold the parts in place if  screws were used  then the parts can be replaced safely if its a crimp eyelet then  its disposable and worth way less  in quality and serviceability the cheap built is worth maybe 50 cents while  the one well built is worth three dollars but  the use time of the lower quality might be 5 years  while the use time of  the higher quality 10 to 15 years usefull life   with less landfill  fodder as well..

KountyKobbler
KountyKobbler

@bwweinstein @ctrudakennedy  Walmart is for the person that thinks he knows what he wants  and the employees are limited in knowledge of appllicaton   so they sell it to him  so he can go home and find out  he did not need a left hand nut  on his right hand threaded screw  and to try and force it only cross threads  and ruins the product making it useless for the customer that may need  either   and ruined for the guy that bought and force fitted the wrong bits.