Management Matters: is a New Article series dealing with the issues that arise when managing personnel and how to optimize your current staff in a company.
To Layoff, or not to Layoff?
October 1st, 2009
Unemployment rates are rising and many unlucky workers are becoming statistics daily. While lay-offs have occurred in all types of organizations across the board, according to about.com, managers may want to reconsider before their organization joins the rest of the pack.
Sometimes things don't work out as forecasted. Clients delay purchases. Suppliers raise prices. Competitors steal market share. Companies must face the forecasts they make and investors don't value executives who miss their numbers. Unfortunately, pressure to take action against these issues quickly works against their own best interest. Pressing for immediate action will force executives to cut costs, as opposed to raising income. Therefore, layoffs have become an automatic response for companies who are looking to cut costs in an attempt to look good for Wall Street. Layoffs are counter-productive and should be a last resort instead of a first choice for management.
According to an article on allbusiness.com, while downsizing has been viewed primarily as a cost reduction strategy, there is considerable evidence that downsizing does not reduce expenses as much as desired, and that sometimes expenses may actually increase.
Writer John Dorfman for the LA Times researched the post-layoff performance of a sampling of companies. His research found that companies that had announced job cuts had an average performance gain of 0.4% while the performance for the S&P 500 during the same time period was a gain of 29.3%.
Many companies fail to realize that they have a tremendous long-term capital investment in their employees. While wages and benefits clearly are an expense item on the budget, they should be thought of more as payments on the capital of their employees’ skill and dedication. A company may lay off employees it considers the low end producers, but in doing so it creates a climate of uncertainty in the company. That uncertainty will cause others to leave and the first people to leave due to uncertainty are usually the best people because they feel confident that they can find another job. Therefore, the climate of uncertainty that follows a layoff usually guarantees a reduction in the quality of the staff, not just the quantity.
Companies contemplating layoffs need to consider more than just the cost savings they are hoping to get from their layoffs. Instead, they need to consider the less obvious effects including reduced morale, reduced performance and reduced quality of the company's overall workforce.