CM: Are there special mechanisms that help organizations cope with an economic downturn?

Pfeffer: I actually don't think there are. What you need to do in the good times is pretty much what you need to do in the bad times. Doing the right things is actually very simple, which is probably why no one does them: Building customer loyalty, and build it by having great employees who are able to produce great products and services. These are the keys to success in good times and in bad. The companies that have done a better job at building customer relationships do better. The fact that the airlines are currently having trouble is not surprising; this is an industry that has essentially abused its customers. By the way, so has software. As I always tell people, if the car industry were like the software industry, General Motors would be the most profitable company because it can sell the most upgrades, because it has traditionally had the most defects. So the industries and the companies within those industries that have done the best, continue to do better even in hard times. Look at Southwest Airlines. Southwest is not having a booming year, but they're having a fine year. The companies that have hired and retained great people and let them do their thing, and have built great customer relationships, will do better in the downturn just as they'll do better when times are good.

CM: When layoffs are required, where's the best place to take the fat out of an organization?

Pfeffer: I think there is an interesting issue here, which is that people believe downsizing takes costs out — sometimes it does, and sometimes it doesn't. Very often when you downsize, you lose the wrong people. Very often companies have downsized and had to hire back the people that they've lost. Very often the morale costs of downsizing are profound, particularly if you do downsizing the wrong way, which is how most companies do it. And that is to announce some enormous layoff, for instance some ten or twenty thousand people, but then not immediately tell people who, specifically, is going to be redundant. So now in an organization of 80,000 people, when I announce that 20,000 people will be cut, it is not 20,000 people who are affected, but 80,000, minus 1, the CEO. Everyone is thinking about whether or not they'll be affected and they're getting their r

Guru: Economic Cure-all

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