21st Century Economics

The intense competitive business environment is often the motivation for a careful and extensive cost-cutting effort within a business and it is also often part of the motivation for consideration of any mergers or joint ventures with other utility organizations. Since labor costs are often seen as one of the most expensive items on the budget, it is natural to look to cutting the size of the payroll as one of the first areas to review to lower overall expenses. This is a very common practice, especially in a merger situation of two organizations that each have a full operational and support staffs, since it is often not necessary to retain everyone to meet the needs of the new, combined organization.

There is, however, an additional important consideration. Many business researchers now view the labor force of an organization as a critical, perhaps, the most critical strategic resource that can affect competitive advantage. When viewed as a critical strategic resource that should be evaluated on the same scale and level as other strategic elements, labor takes on an entirely different perspective. This can be even more important in a merger situation, which is, by definition, a critical strategic decision.

This is called the “resource-based view” and is the object of a serious field of theory, research and practice called Strategic Human Resource Management (SHRM). More and more companies are looking beyond the results of managerial efforts to determine the knowledge, skills, abilities, even traits and motivations critical to achieving strategic objectives.

Corporations have long sought to identify their “core competencies” - those things that the organizations do that contribute to their sustained competitive advantage. Human resources have always been included in competitive analyses, but focus until recently was more on the results of people’s efforts, not the behaviors contributing to them. Now that has changed.

Rather than take the view that the deregulated environment or the new merged organization can best be addressed by offering the lowest electric rates by cutting costs and that cutting costs equates to downsizing the staff, SHRM dictates that the prudent objective is to achieve sustained competitive advantage through the strategic use of all available resources, including human resources. This approach may result in downsizing the staff, if it is done to achieve sustained competitive advantage, however, an organization would be ill advised to downsize potentially valuable staff just to cut costs or to increase product sales.