Business Beat: Erdman layoffs hit home for longtime local firm

Mike Ivey  —  1/13/2009 6:51 pm

When a locally owned company is sold to outside investors, it seems the pink slips often follow.

Unfortunately, that appears to be the case with the cutting-edge architectural and design firm founded here nearly 60 years ago by the late Marshall Erdman.

Cogdell Spencer (CSA:NYSE), a publicly traded real estate investment trust that purchased the Erdman company less than a year ago, is eliminating some 115 jobs as part of an effort to cut costs by some $17 million.

Based in Charlotte, N.C., Cogdell Spencer has about 600 employees, including 350 in Madison on Deming Way. Erdman also has offices in Atlanta, Dallas, Denver, Seattle and Washington, D.C., and a building supply center in Waunakee.

The layoffs, to take effect this week, are due to a major slowdown in the medical building industry, which had been growing at 12 percent to 14 percent annually. The cuts are to be spread across the entire Erdman operation but the firm has released no details on how many Madison people will be let go.

Cogdell Spencer purchased the Erdman firm in March 2008 for $247 million. The idea was to combine the medical facility expertise of Erdman with the real estate muscle of Cogdell Spencer, a 37-year-old firm that went public in 2005.

But the economic downturn is causing many hospitals to delay or cancel expansion plans as they find it difficult to raise capital. The delay of a planned $150 million Heart Center project in Champaign, Ill., is just one driving factor in the Erdman cuts.

"Due to our longer-term visibility, we had to adjust our staffing levels accordingly, which is a very difficult thing to do," says Erdman President Scott Ransom. "We had added over 150 salaried jobs in the past three years. We are also seeing several projects going forward as scheduled, like the St. Mary's/Dean Hospital and outpatient facility in Janesville."

Still, it was those kinds of financial risks which led the Erdman family to sell the company in 2004 to a group of Milwaukee investors. After building smaller clinics and medical office buildings for decades, Tim Erdman -- whose father Marshall founded the company -- said the firm was being asked by its best clients to build hospitals.

"I just didn't have the stomach for that kind of risk," says Tim Erdman, 57, whose father was a protege and close friend of Frank Lloyd Wright.

Moreover, Erdman says he didn't want to become part of what his father called the "medical-industrial complex" by building and owning hospitals.

"We've always believed patients are better served in smaller clinics rather than in big hospitals," he said.

And although Erdman has been out of the design business for nearly five years, he still knows many of the current staff members.

"It's all sad, very sad," says Erdman, who returned to Madison from Colorado to run the business following the death of his father in 1995 at age 73.

A Lithuanian immigrant who came to this country in 1938, Marshall Erdman gained fame by building the Wright-designed First Unitarian Society Meeting House on Madison's near west side. Erdman was also a builder of prefabricated houses, 300 of which were built in Madison alone.

The Erdman family still holds the real estate for the company's former location at 5117 University Ave. through Erdman Holdings Inc., a corporation that includes the Techline Furniture Co. and the Middleton Hills real estate development.

Tim Erdman is now running Techline, which has about 80 employees and had sales of some $20 million last year. He said sales of Techline cabinets have actually picked up since the separation from the design firm.

"Some of the builders who wouldn't buy from us when we were competing with them as Erdman are now buying our stuff," he says. "We're even showing a positive cash flow."

Bad blood

Speaking of layoffs, a new study suggests that surviving employees at a downsized company are not going to work harder just to avoid losing their jobs.

According to Leadership IQ, 74 percent of employees who kept their job amidst a corporate layoff say their own productivity has declined since the layoff. And 69 percent say the quality of their company's product or service has declined since the layoffs.

Leadership IQ, a leadership research and training company based in Washington D.C., compiled these results after surveying 4,172 workers who remained employed following a corporate layoff. These subjects were drawn from 318 companies that have undertaken layoffs in the past six months. Employees were asked questions about productivity, product quality, workforce issues and management effectiveness.

"We call this Layoff Survivor Stress," says Mark Murphy, chairman of Leadership IQ, "There is a great myth that, following a layoff, the surviving employees will be so grateful that they still have a job that they'll work harder and be more productive. But as this study shows, the opposite is usually true."

Other key study findings include:

• 87 percent of surviving workers say they are less likely to recommend their organization as a good place to work.
• 64 percent of surviving workers say the productivity of their colleagues has also declined.
• 81 percent of surviving workers say the service that customers receive has declined.
• 77 percent of surviving workers say they see more errors and mistakes being made.
• 61 percent of surviving workers say they believe their company's future prospects are worse.

Respondents were also asked to describe their personal feelings following the layoffs. The three most commonly used words were "guilt," "anxiety" and "anger."

The study did identify one bright spot when workers were asked questions about their manager. Workers that gave their managers high scores for visibility, approachability and candor were 72 percent less likely to report a decrease in their productivity and 65 percent less likely to report a decline in the quality of their company's product or service.

Mike Ivey  —  1/13/2009 6:51 pm