Cutting capacity in the service sector

Many of the media stories covering the reduction in production capacity in the slump have focused on manufacturing. However, business students should also appreciate that the service sector is far from immune to the downturn. A great example of this is the news from KPMG, one of the leading accountancy firms…

KPMG has confirmed that around 11,000 partners and staff are being offered a short-time package which aims to reduce the payroll costs of this substantial services business.

KPMG’s aim is to avoid a large-scale redundancy programme. So KPMG has asked staff to volunteer for sabbaticals of between four and twelve weeks on 30 per cent pay or move to a four-day week with the fifth day unpaid.

Although the insolvency divisions of the main accountancy firms are (unsurprisingly) very busy, the other parts of the business are experiencing a substantial reduction in demand. Corporate finance activity in particular is well down. There are many fewer mergers and takeovers taking place - projects that kept many hundreds of staff busy during the economic boom.

The offer of short-time working seems to me to be a much kinder and practical solution. I remember from my time as a Staff Manager at PwC during the previous UK recession how tough redundancy schemes can be.

I remember one Friday in particular. There were 30 graduates in one cohort of our office who had just completed their third year with the firm. The partners decided that 15 had to go - immediately - and they agreed the names. So the 30 students gathered in the office to hear their fate. One by one they came into my office to hear the news - stay or go. I had recruited all 30 just three years earlier - and trained most of them to pass their exams. One by one the redundant accountants left the office to start the search for another job. No fun at all - for anyone concerned.