18 Jul Cut the fat not the muscle
Construction workers watch strikers march through Johannesburg. Economists are warning of a global double-dip recession and say unions aren’t helping SA lure foreign investment.
Executives should ensure that when they retrench staff they “cut the fat without cutting the muscle”, a business practice specialist has warned.
Arjen de Bruin, a director at Operational Improvement Management International, said companies retrenched large numbers of staff under instructions from shareholders, but in most cases they did not take into account the fact that this put the business at a disadvantage in the long run.
According to recruitment and research company Adcorp’s employment index for June, about 127100 permanent and 5712 temporary jobs were shed last month.
This was despite a 21% increase in the number of high-level jobs in the same period.
The official unemployment rate remains pegged at 25%, with economists predicting more retrenchments in the near future due to a projected global double-dip recession and strikes.
De Bruin said firms implementing retrenchments were often too focused on immediate cost-cutting at the expense of strategic and long-term forecasting.
“What we are saying is, when you cut too much, you are not cutting the fat, you are cutting the muscle of your company, and operationally, you will not be able to handle the upturn [recovery of your business],” he said.
“What companies do not realise is that you cut back on the wage bill by retrenching a lot of staff today, and six months down the line, when things are better, you end up spending more money on recruitment and training, and you end up losing more money as a result,” he said.
De Bruin predicted “more job losses” in coming months following announcements of large-scale lay-offs by the SABC and Pick n Pay.
Loane Sharp, a labour market analyst at Adcorp, predicted that “mostly big companies” would retrench staff.
Economists say the construction industry, which is experiencing a decline in demand, is likely to shed more jobs. Big infrastructure projects such as the Gauteng Freeway Improvement Project, Gautrain and World Cup stadiums had previously helped keep the sector “afloat”.
Lullu Krugel, a senior economist at auditing firm KPMG, said a possible double-dip recession could be “viewed to be temporary”.
However, “unfortunately, employment is one of the first areas to be affected negatively if the economy slows down and it is also one of the last areas to recover . a lot rests on the future outlook for the global economy”.