Operational Excellence and the Communities It Kills

A week ago, an industry rival announced that it was going to close down a site in nearby Nutley, New Jersey, a decision which will have major ramifications upon that community. In addition to the having to deal with the loss of around $14 million in local tax revenue, Nutley, Clifton and surrounding towns will lose up to 2000 jobs. I would expect that a handful of those employees deemed as most important will be retained and provided sufficiently lucrative packages to relocate to other sites outside the local area. The other who are not so lucky will need to join the growing ranks of unemployed, seeking employment in an increasingly tight pharmaceutical job field, wondering if they'll have to bite the bullet and take contract work or roles which pay considerably less than their current wage.

I'm not begrudging companies from doing what they deem best for their stakeholders. I know that every company has had to make difficult decisions in the midst of increasingly challenging business conditions, and those decisions often have an adverse impact upon municipalities, communities and families. In a strange twist of irony, my own employer made a decision a few years ago to significantly curtail operations at research and development site located in my childhood school district, the same site where my father toiled 30 years to provide for our family. The blowback wasn't pretty. A current colleague who lives in the area confided in me that his family can't walk around town with any paraphernalia bearing our company logo without fear of being hissed at, being targeted by snide remarks or otherwise glared at with looks that kill.

So what will Nutley and the surrounding towns do? They'll do their best to muddle through, and will likely offer a generous tax package (which they might not be able to afford) to entice another employer or set of employers to use the site. There will be more belt-tightening at the community level, and some of the small businesses (e.g. restaurants) which depend on the workers at that site will likely close down. And yes, that will lead to even more joblessness.

I'm all for encouraging job creation and stimulating the economy by creating an economic and regulatory environment which is business-friendly. But while I defend every company's right to downsize, I can't help but wonder if what's happening is a collective death-spiral of our economy by opting for operational excellence (e.g. cost cutting) instead of transformative growth. Or put another way, strategists always warn that a company "can't cut it's way to growth". As more and more companies leave dying communities with dwindling purchasing power in their wake, where will we find the disposable income to purchase and invest in companies which will spur that growth? It's another form of the death cycle. It's all over the place, and the news isn't good.

But the good news that if you have stock in Roche, your holdings are up 2% since that announcement. Terrific.