Does Lean mean cutting headcount?

Does Lean mean cutting headcount?

One of the more common questions about Lean is whether it will result in headcount reductions.

Traditional cost cutting frequently involves layoffs as part of the toolkit. Because of that close association between cost reduction and headcount reduction, it is no surprise that their employees are wary of Lean.

One of the many benefits of Lean is that it improves productivity, so it is not a big stretch to think that it would advocate a similar view of people as an expendable resource. And the truth is that Lean will, in many instances, reduce the need for people. If demand is flat or dropping, as it may be in a company that is in financial trouble, productivity gains don’t impact the bottom line unless headcount drops.

Actually doing this, though, is a bad idea. That’s because Lean relies heavily on employee engagement for two main reasons. First of all, teams are expected to contribute to improvement efforts. Secondly, they are expected to act with great autonomy in daily operations. The system they operate within requires far less supervision than in other companies. Part of that autonomy includes solving problems on their own. They will be very unlikely to commit to either of those things if the reward for doing so is losing their job, or helping the company usher a friend out the door.

For Lean to be effective, jobs have to be guaranteed by management. This sounds like a challenge on paper, but in reality, most companies have some turnover. Companies in trouble even tend to drive people off at a higher than average rate. Couple that with the fact that Lean efforts tend to result in a handful of self-selected departures as well, and there will be some natural attrition at the onset of a Lean journey. Add in a couple of performance related terminations, and it doesn’t take long to reach the desired headcount without layoffs. Of course, it should go without saying that a hiring freeze should be done until the initial upheaval shakes out.

The bottom line is that Lean works only with trust. If a management team harvests productivity gains even once through layoffs, there will never be any future gains.

The Exception to Layoffs

There is one exception to the no layoff policy. When a successful Lean company acquires a new company, it is often one in distress. They may be bloated with far too many people. While it is not welcome, it is understandable that the acquiring company doesn’t want to take on excessive costs. A one-time layoff is sometimes done in these cases, if other means are exhausted. This layoff should be done quickly, though, and the remaining people should be given a promise that there will be no further layoffs.

What to Do with Excess People

Lean has the benefit of being able to put teams to effective use even if there is not enough production work. Cross-training and Lean skills training can be done. And there are always plenty of projects to work on.

These extra people should be assigned to a resource team, though, so departments become accustomed to working with their required staffing. Extra people tend to get sucked into production processes, even if they are not necessary.

Excess is relative and temporary, though. Many companies that have successful starts to their Lean implementation will see an increase in demand. They get quality up and lead time down. They provide better service. Eventually, Lean companies are more likely to have the problem of too few people than too many.