Streamline Training & Documentation: Hoping that Experience Doesn't Count for Much

Saturday, May 12, 2007

Hoping that Experience Doesn't Count for Much

Circuit City's decision to fire 3400 of its highest paid employees — generally, its most experienced staff — has received a good deal of attention (for instance, from James Surowiecki in the New Yorker). Now that the retailer has indicated it expects to show a loss for its first quarter, which runs from March to May, the wisdom of its approach to trying to boost profits is naturally being questioned even more than when it was first announced.

In a May 2 article in the Washington Post, Amy Joyce quotes a company spokesman as attributing poor sales in March and April "to a combination of economics and the companys poor forecasting and planning."

It is too soon to know for sure why Circuit City's sales have been weak. Still, I will be surprised if it turns out that the jetisoning of experienced salespeople was not significant. As I have learned from watching numerous management simulations, there is a strong tendency among managers to underestimate the strength of the relationship between certain costs, such as higher salaries for more experienced employees, and sales revenue. As James Surowiecki points out, "lost opportunities may be hard to measure, but over time they can have a huge impact on corporate performance."

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Labels: Business acumen

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