Page 123 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

When the Great Depression hit, GE’s management was
quick to make deep cuts, but it did so in a considered and disci-
plined fashion. Closely mirroring the drop in sales, the company
cut labor costs by 14 percent in the first year of the downturn,
eventually reaching a reduction of 62 percent in the trough year
of 1932. In comparison, Westinghouse reacted more slowly,
reducing labor costs by only 7 percent in 1930 and reaching 59
percent by 1932. Not only was GE faster, but it also took a more
sophisticated approach than merely reducing head count. In
order to retain as much of its talent as it could and maintain its
competitive advantage in the long term, it shortened the work-
week, cut wages, and shifted skilled employees to lower-skilled
jobs rather than lay them off, as Westinghouse did.
By 1932, GE had laid off fewer employees than Westinghouse
yet had succeeded in making larger cuts in average employee
compensation. The decision to keep talent within the company
helped GE to improve its rate of innovation later in the 1930s
and positioned it to benefit from new opportunities as the econ-
omy started to recover. As a result, GE’s performance far sur-
passed that of Westinghouse.
IBM’s management never conducted mass layoffs during the
Great Depression. Wages were cut from 1931 to 1934 in order
to reduce costs, but IBM’s president, Thomas J. Watson,
insisted on retaining talent by maintaining the company’s work-
force. Watson even introduced a range of employee benefits—
such as life insurance, survivor benefits, and paid holidays—in
the Great Depression years. This not only kept workers pro-
ductive and happy but also helped to attract talent from outside
the company. Together with a crucial decision to maintain pro-
duction capacity through the downturn, Watson’s determina-
tion to maintain the strength of IBM’s workforce was instru-

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