Pfizernomics

London – After the initial shock at the 6000 job losses and multiple plant closures announced recently by Pfizer (see story), the standard reaction to such news is to accept that this is all a necessary part of business in an increasingly competitive global environment.

Another convention is for the financial markets to cheer the announcement: share values rise and the CEO and his colleagues, some crocodile tears perhaps shed, gain applause and hefty bonuses for taking such tough decisions.

Such thinking was recently reflected at pre-Deepwater Horizon disaster BP, where boss Tony Hayward scooped a 40% pay rise, despite a sharp fall in earnings over the previous 12 months (see story).

The surprise hike, as approved by BP’s remuneration committee, derived mainly from a bonus element based 70% on financial and operational targets – achieved largely through major workforce reductions – as well as, ironically, another 15% for meeting ‘key safety measures’.

There are, however, serious limitations to the returns to be garnered from cost-cutting, which can also backfire and seriously damage a company’s standing among existing and potential employees, suppliers, communities and markets.

In the US automotive industry, for example, Chrysler, Ford, and General Motors were left facing oblivion with the onset of the current recession. This was despite years of cutbacks and heavy-handed cost-down policies that forced many of their established suppliers out of the market.

Instead of cost-down, the creation of new business opportunities and jobs should become the main criteria by which senior managers are judged and rewarded. Their emphasis would, therefore, shift from encouraging short-term gain, towards innovation and ensuring more sustainable growth for the business, and safer and more environmentally friendly industrial practices.

As an example, French group Total is currently shutting down its refining operations in Dunkirk, northern France in response to a collapse in petroleum product demand in France, Europe and the US.

According to Total, the refinery reported a loss of more than Euro130 million in 2009. Production was halted in September 2009 and, as the refining operation is no longer considered viable, the facilities are to be gradually dismantled.

But, instead of laying off the workforce (a la Pfizer etc), the group has decided to ’repurpose’ the site as industrial and technical facility. This will carry out new activities that, said Total, “will leverage” the industry expertise of the 370 employees at the refinery.

A refining operations support centre employing 180 people is to provide other Total refineries with technical support for routine operations and assistance with preparing, defining and organising major maintenance and revamping projects. The centre’s teams will also be responsible for static equipment inspection.

A refining training centre employing 25 people that will train group employees in the technical competencies required for refining, while a logistics depot employing 15 people, utilising the refinery’s tank farm. There will also be administrative positions for a further 20 people involved in site management.

Total is also considering the possibility of maintaining the existing production unit for ethyl tertiary butyl ether, which is used in biofuels, at the Dunkirk site. The company is also to offer the site to biofuel project partners for a second-generation biofuel pilot unit. This cluster would provide jobs for around 30 people.

Clearly, this particular, relatively small, project does not prove that Total’s senior managers are any more enlightened that their counterparts elsewhere, but at least its a nod in the right direction.