I suspect that few people know of Stellantis, the holding company that now owns brands like Fiat, Peugeot, Chrysler, Maserati and Alfa Romeo. After being assembled from these component parts, it was (temporarily) the largest auto manufacturer in the world. It has stumbled since then, and according to some analysts, the reason has lessons for all organizations.

The list of factors is not too surprising: quality and productivity problems, not producing cars people want and so forth—a pretty sweeping set. Company share price has fallen by half since March, and many executives have left. As is almost always the case with these apparent steep declines, the causes can be seen easily in hindsight.

Layoffs: Leaner today, but what about the long term?

A quote from an industry analyst sums up the problem: “With a single-minded focus on cost, Tavares [the company CEO] has made Stellantis more efficient than competitive.”  One reason this conclusion is stunning is that it is coming from an industry analyst. They are employed by investment companies, and they have been the players pushing companies, relentlessly, to cut costs.

Stellantis has pushed suppliers—hard—and fought them on contracts, as opposed to the Japanese approach of trying to make suppliers partners. It fought the trade unions representing its employees hard on most all fronts. And getting to our main concern, it has staged round after round of layoffs in the desire to get leaner. But the outcome was cars that people don’t want to buy—most notably in the Jeep lineup, which had earlier received a lot of positive attention.

Operating leaner is certainly an important goal. Operating with fewer people can be a good marker for higher productivity, although it can also mean pushing employees harder and paying them less.

Let’s just assume that the leaders of Stellantis are not dumb and that the diagnosis from the industry analysts is at least partially right.  What would lead them to cut so much as to damage the ability of the company to succeed?

Surely, one reason is that industry analysts like cost cutting, and therefore playing to them as the most important stakeholder could mean that one keeps cutting to keep them happy—even when we know that it is not good for the business. A good CEO and leadership team should be able to push back on the analysts and investors, though, and argue why further cutting is just not a good thing. Or, put differently, it may look good now but it won’t shortly when we try to operate without the right amount of resources.

HR’s role in measuring the impact of layoffs

I don’t doubt that some leaders just don’t care enough about the future to push back. Take the jump in share price you can get now, hope to cash in on your options fast and get out before things fall apart.

But there is something more fundamental going on: If leaders care at all about operating with some success, how can they know when the company has started cutting too much?

It is mean and cruel to just keep cutting until things stop working, but it is not irrational if cutting is your goal. The “work-out” model Jack Welch installed at GE a generation ago operated like this: Take out staff, and let those who remain figure out how to get the work done, in part by deciding what tasks are not important to do. That sounded great, except for how hard it caused people to work—in some cases, up to their physical limits—sometimes without effort to tell the difference between whether they were working smarter or just heading to burnout level. These practices were also an important cause of the work/life balance problems we’ve seen ever since.

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