How loyalty to employees sparks innovation

By Bill Fotsch and John Case

Earlier this month, HP Inc. announced alayoff of up to 9,000 workers over the next three years. This comes on theheels of an earlier three-year layoff plan that reportedly eliminated as manyas 5,000 jobs.

Meanwhile, GE said thatit was freezing pensions for 20,000 employees. It offered pension buyoutpackages to 100,000 former workers.

No doubt these were necessary business moves, at least inthe short term. HP’s stock ticked up on news of the restructuring. GE is tryingto pare down its mammoth debt.

But what a position to find yourself in. Here are twocompanies that were once exemplars of corporate America, legendary enterprises thatbuilt—and could count on—the long-term loyalty and engagement of their workers.HP was famous for the HP Way, anemployee-centric management philosophy pioneered by founders Bill Hewlett andDave Packard. GE was more conventionally run, but as the Wall Street Journalrecently put it: “Fordecades, a job at GE with its generous pension was a safe ticket to amiddle-class life for many Americans."

Today, you have to think that for the foreseeable future, any well-intentioned human-resources program to promote engagement or loyalty at these companies will ring hollow. Actions speak louder than words.

None of this, of course, should come as a surprise. Managers all over the corporate world assume that there’s no alternative to hiring and firing their employees as business conditions dictate.

But there is. You can see it in a handful of large publiccompanies, such as Southwest Airlines. And you can see it in many well-managedprivate companies.Unlike every other major airline, Southwest has never had alayoff. Unlike every other major airline, it has never entered bankruptcy. Ithas been consistently profitable, including through the Great Recession of2009-2011.

AnthonyWilder Design/Build, a family-run general contractor in the D.C. area,doesn’t do layoffs, either. Neither does Hypertherm, a NewHampshire–based middle-market manufacturer of high-tech cutting equipment. Bothcompanies have been surviving and thriving for decades.

These companies view their employees as business partners, lifelong assets to the enterprise and a vital part of the company community. They don’t get rid of one another just because times are hard. Rather, they take care of one another.

You can see the difference in outlook most clearly in acrisis. When the last recession hit, Anthony Wilder’s owners took a 50% paycut. Managers got a 30% reduction, other employees 20%. The shared sacrifice enabledthe company to survive the sharp downturn in its revenues without any layoffs. Oncethe business recovered sufficiently, everyone was made whole. Meanwhile,competitors were scrambling around trying to find employees to hire.

Hypertherm, too, saw its business struggle during thecrisis. But no one was let go. Employees “mowed lawns, helped to moveequipment, or filled in where they were needed—and continued to draw full pay,”according to a report on thecompany.

But the differences run far deeper than humane responses tofinancial difficulties. These companies build a unique kind ofengagement—economic engagement—into virtually every aspect of their operations.

For example, employees learn the basics of the business and what they can do to improve business results. Southwest has launched numerous initiatives along these lines over the years. One for which we were involved in a consulting project was called Plane Smart Business. Fuel prices were high at the time, and pilots learned to monitor and reduce fuel usage. Ideas came rushing in: flying a perfect profile, shutting off the auxiliary power unit in a timely manner, adding rafts so they could fly direct rather than around the Gulf, and so on.

At Anthony Wilder, the books are open. Every employee seesthe company’s revenues and costs. They track and forecast revenue, gross profit,and expenses. Weekly meetings are filled with discussions about how to improveprofitable growth, starting with delighting customers. (This MSNBC video, “It’s Your Business,”provides more details.)

Hypertherm’s employees monitor monthly earnings beforeinterest and taxes. The company sponsors what it calls continuous improvementactivity, a systematic method of gathering ideas to improve business results. Itgets between 100 and 150 ideas every month and follows up on all of them.

All these ideas lead to innovations. The innovations produce greater efficiency, better working conditions, and more value delivered to customers. That, in turn, leads to better business results. It’s no accident that these companies have thrived through thick and thin. 

And what’s in it for the employees? Well, they act likebusiness partners, and they are compensated accordingly. They share in theprofits. (Southwest’s profit sharing last year came to $544 million—a bonus ofabout 11% of pay.) They own shares. Anthony Wilder is now more than a quarterowned by its employees. Hypertherm is 100% owned by its workers, through anemployee stock ownership plan.

GE and HP probably can’t get back on this path for a long time—economic engagement of this sort is based on trust, and they have already undermined their employees’ trust. But for most companies it isn’t too late. In fact, you can start today.

Bill Fotsch is founder and president of Open-Book Coaching. John Case is a writer who has published widely on open-book management and related business philosophies. (To subscribe to authors' biweekly email newsletter, please send the word ‘Subscribe’ to natalie.disney@openbookcoaching.com).