Analysis of Cost Reduction Through Natural Attrition

Today's topic is more on corporate study which is my first hand observation in my previous company.

"Natural Attrition" sounds deep, but in reality it means people leaving a company (hopefully) in a voluntary way. This topic reads as: A company will have less staff over a certain period of time due to people leaving 'naturally' (whatever this means). As a consequence of that, it saves cost.

A lot of companies now employ this strategy. Some reasons belo, listed in descending probability. Last item having probability asymptotically close to zero:

1. Avoid possible law suits
   
2. Avoid being smacked by unions
3. No money to pay for severance packages
4. Want to save face/corporate image,
   
5. Want to treat employees nicely.
   

From the surface this sounds good, looks good and even feels good for those high above. Here, I want to argue why this logic is somewhat flawed.

First of all, this strategy will work as expected if the following conditions hold:
i. Employee population is homogenous in terms of competency
ii. (most important) Attrition rate is uniform across the homogenous population

If any of the above doesn't hold, the company is entirely in different path. I will illustrate this with a pseudo-story ('pseudo' because some of these are real):

Let's take a hypothetical company I as example. Company I is a multinational company making toilet bowl and flush. It has dominated that market over 3 decades with plants in US, Malaysia, China, Ireland, and India. However, recently another company, Company A, has developed a kickass product with two water-flushing cores (also known as dual-core flusher) and best of all, those flushers are much more resource saving and won't soak up user's pants. Now company I is in deep shit. Market share is shrinking, company is inhibited by useless employees who are only skillful to backstab each other, and product in the pipelines are all messed up.

The first in place is cost reduction measures, which include each employee is rationed with one roll of toilet paper each month and no more. Pencil erasers are replaced with saliva'ed fingers. Building service contracts are terminated and employees take turns to clean up the office buildings. Hiring? You are kidding. Company I doesn't want to lay people off because the management still thinks natural attrition is the best solution.

As work load builds up due to no replacement, pressure is proportionally mounting among employees. The entire corporate morale is dropping like stone. People start to look for a way out after fed up with numerous business update sessions which go something like: "This is yet another winning quarter for us with year-to-year income increases by 450% because US bombed the shit out of Iraq and they are toiletless and gotta order 30 million of seats from us. But for strategic purposes, we still won't give any bonus this year anyway. One more thing, we will heat up the left over from yesterday's breakfast as your lunch.... (the following is in quick continuation with no pause) Questions? No questions? Excellent!"

What kind of people will leave?

1. People with real ability, who are capable and marketable
   
2. People who dare to take risks and endure uncertainties
   
3. People who don't care too much money on paper (stock options, share grants)
4. People who just hate Company I's culture

Now by taking the negation of the above list, it is easy to see what kind of people will stay:

1. Politicians or Jokers who are dead-idiots with close-to-none competencies (with exception of back-stabbing techniques)
   
2. Risk aversing people who need job security, or simply don't want to take any risk
3. People who don't want to give up the not-vested options and grants
4. People who love the company (!!)

Note someone may in one or more categories above. A company that has people in even one of the non-desirable groups, will be in trouble.

Let's analyze, #1 is obvious, politicians and jokers will only add chaos in the company with no real contributions. In fact, they even will drive away those who are competent to secure their jobs. #2 is also close to useless. They may be apt for a tobacco company where business has been the same for the past and coming 100 years, but for a high tech company like I, they won't help much. #3 maybe, but these people are very calculative, they would reason the heavy workload was not justifiable for the pay they received, hence would jump already if they could, too. #4 is so rare that I have yet to come across one. If you have known any of #4's, please gimme a call so that I can send them to museum for preservation and added protections.

We can see over time, the company is left with a pool of mostly useless, incompetent employees. That company may achieve the size reduction it desires, but what is the cost? The right way should be to analyze and single out the low-performers and painstakingly lay them off. This is the golden time to trim the dead corporate branches and purge the idiots out. This was what Jack Welch did to GE when he just took over and won a notorious title of 'Neutron Jack'. However over the years, he was proven correct multiple times and GE was back as one of the best corporates in the world. Can Company I spring back to action? I doubt it.