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LET THE GOOD TIMES ROLL--AND A FEW MORE HEADS
By most measures, times are flush at GTE Corp. The Stamford (Conn.)-based telephone company is a leader in the fast-growing wireless world. Phone use is up, and operating income rose a tidy 5%, to $3.3 billion, through last year's third quarter. Shareholders earn a healthy 5.4% dividend.
So much for the good news. On Jan. 13, GTE Chairman and Chief Executive Charles R. Lee said the $20 billion company would take a pretax charge of $1.8 billion in the fourth quarter and lay off more than 17,000 employees, the bulk of them in its core local telephone business. GTE, Lee explained, must replace workers with computerized equipment. "The time to improve your company," he says, "is when you see the marketplace and technologies changing."
Funny thing. U.S. economic growth is expanding at a considerable clip: Economists figure growth in the fourth quarter of 1993 will come in at over 4% (page 23). Yet some of the best and brightest among America's big corporations are continuing to restructure. In the year's first fortnight, such stalwart--and profitable--outfits as Gillette, Eli Lilly, and Arco have announced significant layoffs and financial charges. More are coming: Insurance giant Aetna Life & Casualty Co. is expected to detail a major restructuring within weeks. Even in technology sectors where the U.S. is a clear world leader, big companies are cutting back. In addition to GTE, Pacific Bell, Xerox, Electronic Data Systems, and American Telephone & Telegraph are all hacking away.
What's going on? Simply put, executives are nervous. They hear increasing demands for greater value from customers, and feel the relentless pressure of global competition and fundamental shifts in technology. Haunting nearly everyone is the memory of those that have stumbled--IBM and General Motors, among others--and the well-publicized dismissals of CEOs who didn't act quickly enough. "If there's any sense at all of room to improve, the pressure's on," says George Burman, dean of the Syracuse University School of Management.
"ROOM TO IMPROVE." Take Xerox Corp. Barry Romeril was brought in as chief financial officer from British Telecommunications PLC last summer to add a little fire to top management. Romeril quickly set to work comparing the office-equipment company's performance with other companies. "We knew we had room to improve," he says. Not only that, earlier attempts to improve efficiency had done little to cut overall overhead, which actually rose. The result: Xerox' pre-Christmas statement that it would cut 10,000 jobs and take a $1 billion-plus charge to remain fighting fit.
In telecommunications, the rapid change from electromechanical to digital switching and the entry of new competition are rewriting the rules of the game: American Telephone & Telegraph Co.'s long-distance arm expects to lay off thousands as it replaces human operators with computerized voice-recognition systems. High-growth computer-services star Electronic Data Systems Corp. is biting the bullet, too. "We grew so rapidly for so many years that our solution to most problems was to throw more people at them," says Chief Financial Officer Joseph M. Grant. Time now for a "fiscal fitness" regime: EDS ended 1993 with an estimated 800 fewer workers than in 1992.
And the opening of markets in countries such as India, Russia, and China is leading Gillette Co. to consolidate factories and offices in established regions in order to expand in emerging markets. "We're acting from strength, not weakness," says CEO Alfred M. Zeien. "We want to organize ourselves to cope with changing geopolitical conditions."
The alternative, of course, is having to cut costs after the damage is done. That's what Procter & Gamble Co. wants to avoid. Its administrative and other overhead costs rose by 2 percentage points, to 14.5% of its $30 billion in sales, over the past three years, at a time when consumers were demanding more value and low-priced competition was thriving. Increases in productivity helped P&G improve earnings--but the company knew it had to get leaner to remain competitive. So Procter is paring employment by 13,000, or 12%, cutting layers of management to speed decisions and closing about 20% of its 147 factories. Similarly, cutthroat competition in the beer business is forcing Coors Brewing Co. to use early retirement and voluntary buyouts to cut its brewery work force by about 600, or 25%.
For the American worker, the thought that even the healthiest of companies are shedding pounds is not a pleasant one. The bad news is that such corporate dieting isn't going to stop anytime soon. But in contrast to a couple of years back, the latest series of layoffs comes as the U.S. economy is finally generating substantial new jobs, many of them at leaner, nimbler, smaller companies that have not yet developed a midriff bulge. In the fourth quarter, estimates consultant John A. Challenger, general manager of the Chicago outplacement firm Challenger, Gray & Christmas Inc., the economy added 500,000 new jobs beyond those lost to layoffs. And the average time spent finding a new job dropped to 13 weeks, from 15 weeks last spring. Cold comfort, perhaps. But flush times just ain't what they used to be.
THE AX KEEPS FALLING
Restructurings announced since Jan. 7
ARCO As part of a reorganization of oil and gas operations, Arco will take an aftertax charge of about $450 million and cut about 1,300 employees
GILLETTE It will take an aftertax charge of $164 million and lay off 2,000 employees over the next two years, to refocus on emerging markets
GTE On Jan. 13, it announced 17,000 job cuts, most of them in its core local telephone business, forcing a $1.8 billion pretax fourth-quarter charge
PACIFIC TELESIS The regional Bell company will reduce its work force by 10,000 over the next four years and take a $665 million aftertax charge
DATA: COMPANY REPORTS, BUSINESS WEEKTim Smart in New Haven, with bureau reports