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April 10, 2007

Circuit City Cynicism

Sometimes, even management consultants can be shocked by company behavior and language. Take, for example, the mass layoffs at Circuit City two weeks ago, where some 3,400 experienced employees were fired as part of a "wage management initiative" (Circuit City's phrase) or "The Circuit City Slaughter," according to activist journalist Barbara Ehrenreich. Who dreams up these circumlocutions, anyway?

Peter Cappelli, management professor at Wharton and director of their Center for Human Resources, described the move in an University of Pennsylvania's Knowledge@Wharton article as "the most cynical thing I've heard about in a long time. I like to think I'm cynical, but sometimes it's hard to keep up."

Keeping up is the name of the game. Circuit City is replacing the laid-off, higher-cost employees with lower-wage new hires to improve the company's bottom line. Here's the math: According to Wharton, Circuit City was overpaying its most experienced employees by 51 cents per hour compared to industry averages. That's around $1,020 per employee per year, or about $3.5 million.

Now, to be fair, Circuit City CEO Philip J Schoonover, in the CEO seat less than six months, is paid less than the going rate among his retail CEO peers, according to Forbes' CEO pay report  -- just $2.17 million versus an industry median of $4.25 million. Despite one blogger's modest proposal, perhaps CEO Schoonover is simply reapplying the same lower-cost strategy to the rest of the staff.

Another outcome could be what Wharton professor Daniel Levinthal calls "a massive de-skilling" of the company. Will customers still shop where less-experienced and presumably less-knowledgeable employees are serving them? Only time will tell.

So what does this mean for employees at other companies? As my colleague Connie noted in her post about the Citibank layoffs, the long-term trend is clear -- meeting financial targets can mean cutting the costs of labor and benefits, even in sales and white-collar positions that were previously considered immune to layoffs.

What to do? Don't lose sight of how you contribute to the company's overall results -- and be sure to let management know what you've done for them lately. Here are some resources that can help:

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Posted by Ryck on April 10, 2007 at 01:00 PM in Current Events | Permalink | Comments (18) | TrackBack (0)

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Talking about 'a job's worth', how can one make money with something like photography, when so many (on Craigslist, for example), are willing to give it away for free? So are my skills worth anything, when others are willing to do the same thing for free, even if it's not as good?

I use to work for this company, and was told it was not in the budget to give me more than part-time, or pay me more than $8/hr. Years after I left, the company bought out more than a few other companies, for an estimated 1 billion dollars. Guess it was in the budget, but others were waiting in line to do my job, for even less, with less hours, and one of those people now holds the job.

I don't mean to be complaining...I'm just trying to figure out how to make money doing something that others will gladly do for free. It's not as if you would ask your accountant or attorney for a discount, or to work for a TFP scenario. But photography? You have to have expensive equipment, yet most people think it's worthless.

Posted by: Anonymous | Apr 11, 2007 1:31:39 PM

Sad fact is that, in most jobs, "Smart don't count for much." the object of the exercise is raw productivity, and many of us never get beyond the stage where compensation is directly related to the quantity of physical and mental output.

Sales work adds another factor, since a heavy component of behaviotral knowledge/skills are required. The purchaser may not be the ultimate user, particularly if the product/service is intended as a gift, and the vast majority of customers respond positively to some degree of "stroking". The no-frills, utility-only end user is quite likely to buy on line or resort to a more technical process of evaluation.

The inequities cited have likely been further complicated by the larger trends underway within the "new economy". This writer spent several years engaged in technical support in a call center environment. The mostly-younger-male workforce who supported the effort during its developmental months were slowly driven off by repeated refusals to offer paths to adavancement along strictly-technical lines, while younger, lower-paid predominately-female employees, who offered little or no resistance to management pressure for mandatory sales pitches, replaced them.

One final thought: One wonders if the outrage would have been as great if persoal health practicies had been cited in the firings. (i. e: if employees who were overweight or smoked had been terminated to reduce the anticipated health-care burden)?

Posted by: Night Op | Apr 13, 2007 11:49:08 AM

1) This is the usual only moreso. The customer gets less experienced service, the staff gets taken down a notch and the company walks away having flipped the bird to consumers and workers. Their stockholders will rejoice and that is all that matters. What else do we expect?

2) The burden of providing access to healthcare has to be lifted from business and sourced elsewhere. The situation new businesses find themselves in has gotten ridiculous. The older businesses can't sustain the liability of such costs. A compromise on healthcare for all Americans, esp working people, has to be reached.

Posted by: mc | Apr 17, 2007 5:40:31 AM

As someone who works directly with photographers, I both agree and disagree with the comments on this blog.

In the case of photographers, there are skilled individuals who are willing to work for close to nothing. However, as the talent increases, so does the pay scale. Any industry, regardless of saturation, has outliers, those who are above and below the mean. Look at musicians. There are millions of groups out there, yet certain qualities cause the best to surface. Take writers, the amount of aspiring writers is daunting, yet those who have what-it-takes to write for the wall street journal, NY times or national publications make it to that level because of a strong resume, a history of success and a striking portfolio.

Photography is the same way, although it is often very subjective, certain photographers "get it." They get what an employer is looking to achieve and this is worth paying for. Ultimately, this idea translates to all fields where the supply of workers exceeds the demand. Saturated fields -in terms of employees- raise the bar of the skill level and because of this, workers in these types of industries must demonstrate exceptional talent. If they can do this, they will make a quality living (financially speaking). And while it will be less when compared to an industry with a lower supply (such as tech or computer programming), it is the trade-off these people must accept to work in a field they enjoy.

The difference between good photography and bad photography is clear the moment you see the photo. If you want to see an example of standout work checkout http://www.bizsandiego.com and think to yourself, “would I get this type of quality if I asked someone to do it for free or if I used my digital camera?

Posted by: Elliott | Apr 17, 2007 1:46:23 PM

There are so many implications here - this could make the remaining employees ripe for unionization... or it may even be a battle cry for unions in other service industry settings. The new employees could require training and/or will likely be less productive - therefore the savings may be nullified. On the other side - what C.C. doesn't say is how much they project savings to be on the future cost of benefits (health care, retirement etc.) vs. the new employees. There is likely to be a backlash in consumer behaviour - or maybe I'm being ego-centric, due to being in the market for a job (at 45 years old, looking for 6 figures... guess I won't apply at C.C.).

Posted by: J | Apr 18, 2007 8:03:47 PM

a company is gotta do what a company is gotta do. if the BoD disagrees (or shareholders), the CEO should be fired. if not, it will be a shrewd decision.
the US (media) seems to be more anti-business by the day. layoffs happen. if these guys are worth their salt, they'll be back on their feet in no time.
i'm betting there won't be a backlash--unless the media picks up the cause (like an anti-walmart cause). attention spans are too sort. it's life. move on.

Posted by: Lee | Apr 22, 2007 10:48:56 PM

Lee, I don't know if this is anti-business, but is sure as hell is anti-Circuit City. I'll never buy a single item from that store again. Even if they rescinded there anti-worker policy, I would never buy from them. I want to see that store go out of business as a lesson to the rest of pigs who want to get rich off exploiting workers with unfair labor practices. My thoughts for you are, why don't you move on creep, post your moronic Machiavellian bullshit somewhere else.

Posted by: yeranalyst | Apr 24, 2007 12:09:50 AM

Call centers do the same. ACS for example, when the wage earned is 1.5 x the starting wage- U will be set up to be fired.

They grow and pay execs by underbidding all other Call Center Contracts

Posted by: michael korte | Apr 27, 2007 1:10:52 PM

I look at the open source community and definately view it with the same light. If people continue to develop and give away software, then this threatens the livelihood of those of us that depend on our current income. To a large extent, the same could be said of outsourcing. If a programmer makes $100K/yr (including benefits and other incidentals) in the US, while as the position pays $10K/yr in India, China, or Russia.
Personally, I believe that the open source community should set standards on software interfaces and communications. That is a big challenge, as demonstrated by the OpenOffice standards. But this is a good mix of doing things to establish data exchange and leaving opportunity for companies to make money with their products.
Now, I really like the GLPv1 way of doing things, so that anyone who uses a GLP source code needs to pass on the tradition. It the GLPv3 Tomcat/Appache approach which allows corporations like IBM to take software and add it into their product suite and sell it along with their marginal contribution [WebSphere] without compensating the original contributers.
This who issue of anti-business is BS. The gov't is very laisse affair when it comes to workers demands for compensation. On the other hand, the govt has deep pockets when it comes to corporatate handouts. How much of our tax dollars are going into reconstructing Iraq? How much of this reconstruction is aimed at rebuilding Iraq's oil infrastructure? Whenever there is a problem, probably created by some wealthy individual looking to get richer, our govt is willing to do whatever it takes. Just look at the terminalogy used by the media. When workers ask for something, it is painted as communistic. However, when in 1992, the US govt bailed out investors in Mexico to the tune of $500B, it was labeled as protecting the economy. Another example, even prior to the lawsuits, in 1972 tabacco was the most subsidized crop in the US. Why the hell are the majority's tax dollars going to subsidize tabacco? Probably because the Duke family influenced legistators to subsidize tabacco. Yet no one knows nor complains nor changes anything. Probabaly because our republican [indirect representation] system isn't as democratic as we want.
We live in a society where a bunch of rednecks kids are running out to fight, kill Arabs, and die while the upper echolons are taking over more and more wealth.
There was a funny stat in the NYT. It looked at the % breakdown of people serving in the military versues social-econonic status.
30% of Hispanics had a family member in the Armed Forces.
25% of African-Americanss had a family member in the Armed Forces.
15% of Whites had a family member in the Armed Forces.
5% of Asians had a family member in the Armed Forces.
2% of Senators/Congressmen had a family member in the Armed Forces.
<0.1% of fortune 500 CEO had a family member in the Armed Forces.

The majority of the US portray themselves as Christians, but very few question the whole notion of stealing Arab oil to maintain our lifestyle and automobiles.

With this sort of society, why are we so upset that we too are being robbed as well.

We have the best for of govt that money can buy!

Posted by: Anon | Apr 29, 2007 2:05:26 PM

All the "savings" the mass terminations provide for Circuit City won't save the company from severe losses and downsizing. It is not the new CEO or the math. It's the fact that the company has an ineffectual "customer service" attitude. Nothing turns a company into a has-been quicker than destroying it's repeat business and creating bad word of mouth advertising.

An example: Circuit City promotes a "rebate" on it's computers. While the sales personnel don't mention it, their on-line and reference material (sought after the fact) is replete with "Don't throw out the UPC codes on the box"

The rebate is refused without the UPC codes (ridiculous requirement done to reduce having to pay the rebate). Their company line is "No box, no rebate". This creates feelings from irritation to anger at being "had". Very few people take the time to read the eight-point type on the eighteen inch sales slip until they want to file for the rebate and the box is long gone by then. This will save them $50.00 or so but cost them millions in dissatisfied customers who will actively spend time steering other people away from Circuit City.

Posted by: S. Thompson | May 4, 2007 9:35:28 AM

It's called "race to the bottom" and it's alive and well in the U.S.

Posted by: Sally | May 12, 2007 8:49:05 PM

I was a victim of the slaughter, in the technology arena selling computer and camera equipment. I prided myself on product knowledge and the ability to help MY CUSTOMERS find a solution to what they wanted and needed. My customers really appreciated it as evidenced by their repeat business and referrals of friends and neighbors. I accounted for almost half of the technology sales at my location. Now the sales guys just read the cards or guess. Sales are way down, satisfaction is way down and Circuit City profits are in the toilet. Is there a correlation between killing off 3400 of your top performers at the end of March and then having April be one of the worst months in history? Circuit City blamed the decline on the customer not buying enough but I think it has more to do with Circuit City not providing the smarts to help the customer. Besides that, Circuit City is reputed to make the majority of its profits from add-ons; e.g. extended warranties and services. Low-end employees and new-hires do not sell add-ons, they are doing good to sell the box!

Posted by: B. Mohr | May 14, 2007 8:13:47 AM

Sam Ash Music Stores did the exact same thing earlier this year... Some positions were cut across the board, sales and support staffs were drastically reduced, and many experienced managers were forced out and replaced with inexperienced individuals at entry level wages. Health insurance was moved to an inferior carrier with much greater out of pocket expenses, sub-par networks, and the weekly employee contribution was raised. For the remaining employees this means doing more for less, and for the customers it means inferior service (which by most standards was poor to begin with). There were several other cost cutting moves, but these were the meat and potatos of it.

Posted by: boycott | May 15, 2007 2:53:56 AM

Our local Circuit City just fired two managers and 5 other senior positions and called it a "company re-alignment". Not only did these people do they're job, they were a lot better than half the people there now. According to the store manager, they were "taken care of" and given a good severance package. It doesn't make any sense to fire some people, re-align your staff, and pay the new supervisors more. Good luck catching up to Best Buy.

Posted by: Chris | Jun 12, 2007 12:34:13 AM

Technology Vendors
----------------------
Best Buy *****
Circuit City ****
Amazon ****
PC Mall ****
Ebay ***
UBid ***
Comp USA ***
Fry Electronics ***
Computer City ***
Good Guys ***
Wal Mart ***
K Mart ***
Target ***

Posted by: Raj Chanani | Jun 19, 2007 3:07:11 PM

This is nothing new! Circuit City did the same thing in 2003. They just didn't call it a "wage management initiative". My husband was there for 10 years and was one of their best managers. We wondered where all the experienced guys that started the same time as him went. They just one by one were no longer working for the company....no explanation.....no know notice left.....just no longer working for the company. Then we found out when the hatchet started coming down on him. They actually created a hostile environment....trying to run him out of the company so we started looking for another job. The finale was when they laid off half of the management in the company in 2003. They didn't say anything about salary then but we knew that was what it was when it happened since it didn't include the newer managers who were hired in for less and had less tenure. The company never recovered either. Circuit City was a great company to work for and was constantly on top until they started getting greedy in about 2001 or 2002. As they started paying less and bringing in the uneducated and unqualified and unprofessional people, the store and stock went down the tubes. Then it plummetted after the mass layoff in 2003. It was sad to watch because we invested alot of time into that company. It was sad when we sold our stock too because we lost alot of money. Like I said, this most recent layoff is nothing new for them and anyone who thinks their job is safe now better think again. Those who were laid off this time were left after the layoff in 2003. You were already being paid less than those who were laid off in 2003 and now they have done it again. If you still with the company, your time may come in 2010 or 2011 when your annual raises bring you to an income level that is unsatisfactory for Circuit City.

Posted by: Kimmo | Jun 26, 2007 10:46:35 AM

How about the backlash as customers refuse to business with Circuit City? Did they consider that when making this decision. I know that I won't shop there anymore. I am not the most tech savvy person so I don't want someone selling me a $5,000 tv that worked in a car wash last week. I want someone who knows t.v.s.

Posted by: mmmmmommmy | Jun 27, 2007 1:09:06 PM

Have people seen how much Philip Screwover earns? I bet he feeds his family very well. What has been done to loyal workers at this company is a disgrace. LostmyJob

Posted by: LostmyJob | Aug 16, 2007 7:06:52 PM

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