Mid-crisis the pressure to cut costs was huge, and in a lot of companies (including mine), the result was a round of layoffs.
- Significant indirect costs often wipe out the direct savings of layoffs.
The short term effect is positive, a reduction of costs. But if necessary work is not being done you’ll be rehiring within 6 months with hiring and training costs that wipe out your savings.
- Your best employees might bolt after a round of cuts.
Research shows that in an environment of repeat downsizing your best employees will jump. That’s a loss of talent and expertise you can’t afford in a crisis but are more or less powerless to stop.
- The best types of workplaces often suffer the most.
If you’ve built a workplace that prioritises personal development any shock to the personnel systems will be more unsettling than in a more cynical workplace.
- Layoffs decrease organisational performance.
As you lose expertise, and the psychological effects ripple through the organisation performance will suffer.
- Employee retention is linked with customer retention.
Customers may become disillusioned as their service levels drop.
I would add a sixth one; when the recessions passes (and they do) it will take you longer and cost you more to ramp up to new market demands.
So with all that in mind I wondered if anyone had steered their way through a crisis avoiding the layoff decision. I found one case; Alexander Kjerulf reports on a small company (2800 employees) called Xilinx. Rather than cut jobs the then-CEO Wim Roelandt cut salaries, starting with taking a 20% cut himself. He devised a series of strategies under the umbrella of “share the pain” and he communicated with employees – including using employee focus groups in developing the recovery strategies.
Although it was never promised Xilinx, a software company, survived the dot.com crash of 2001 without making anyone redundant.
Recent research shows that 94% of employees would consider a different pay/work structure rather than go through layoffs. So employees can see alternatives even if companies aren’t there yet.
It’s clear cost cutting needs to be done in a downturn, but given the costs of building a great team and the benefits to the company, layoffs should not be the automatic solution.