Pharmaceutical company Pfizer says it is likely to cut thousands of jobs under a strategic restructuring plan it will announce next week.
The company’s new chief executive officer, Jeffrey B. Kindler, is expected to present his new plans Monday.
The cuts might affect the Pfizer European sales force the hardest, following a 20% reduction in the U.S. sales team in November 2006. The company may also close some facilities.
According to John Austin, an author, business professor, and management Ph.D. blogger, if the layoffs reach a threshold of greater than 5% of the Pfizer workforce, investors should look carefully at how the company is carrying them out.
“In general, layoffs that involve complete facility closures or are limited to specific job functions, such as sales force, are much easier to manage and are less damaging to employee morale,” says Austin.
Is This It?
A Pfizer statement that “more restructuring may be needed in the near future” given as part of the layoff announcement could be a large red flag.
“Already Pfizer has begun to move along this dangerous route by announcing layoffs two months ago. The empirical evidence is absolutely clear about one thing. Multiple layoff announcements spread over a period of months or even years is far worse for future company health than is a single large painful layoff,” he says.
Austin notes that multiple layoffs freeze the company stock price as investors wait for the other shoe to drop. Multiple layoffs also poison the internal company culture, sparking rampant rumors, increasing employee economic fear, and prompting the best employees to look elsewhere for work.
Tracking Expertise Now Pays Off Later
Layoffs in the past have always operated with the implicit assumption that every company has some “low hanging fruit,” according to Austin.
However, he points to two things have changed that make if very difficult to lay off the “right” employee these days:
- Companies have improved hiring processes so they have fewer poorly performing employees.
- Managers are now taught that good management is not micro-management.
“Taken together, these two observations suggest that companies are less able to fully understand how employees accomplish their goals. The work-specific knowledge increasingly rests with the employee, not with the manager. This point is nicely illustrated by the “pointy-headed boss” in Dilbert,” says Austin.
Austin points out that pharma companies are facing a difficult and changing market. He says it is natural that these companies will need to realign company resources to deal with the new environment.
“Some of these changes have already happened. Pressures to reduce costs and development times for new products have prompted most pharma companies to restructure their R&D operations,” he says.
“Now, changes in how doctors select pharmaceutical products will require all pharma companies to rework their sales forces. The sales forces are set up to target individual doctors. This worked when drug purchase decisions were decentralized and doctors had more time and fewer restrictions on what perks they can accept,” he says.
However, more prescription decisions are being made at the hospital or health-plan level.
Austin contends that the labor-intensive “meet every doctor” sales model that worked 10 years ago is no longer practical or efficient.
“I would guess that pharma companies no longer need 20,000 energetic young sales people to push their product. They would do better with 5,000 experienced reps — perhaps MDs — who can work with HMO purchasing managers,” Austin adds.