Thursday, 26 February 2009

The Layoff


   There's a great case study with commentaries from four experts in this month's Harvard Business Review.  It's called 'The Layoff' and as the name suggests, looks at one organisation about to embark on a redundancy programme.

Linked to my last few posts, one key theme in the expert, and amateur comments is the need to avoid layoffs altogether if at all possible.  For example, Rob Sutton comments that:

"Unfortunately, too many executives blindly assume that layoffs are the best way to cut costs. With the exception of a lower-level vice president, none of the managers in this case seriously challenges the notion that 10% of the employees must go. The top executives don’t discuss alternatives such as pay cuts, reduced benefits, unpaid vacations or days off, or incentives for voluntary departure.

Nor do they consider how long it will take for the savings from the head-count reduction to kick in. A Bain & Company study of layoffs at S&P 500 firms during the 2001 downturn showed that it took them six to 18 months to realize savings from job cuts. And, when calculating savings, most executives fail to account for the cost of recruiting, hiring, and training new people who will be needed when good times return—let alone consider the damage to morale and productivity.  Those costs are often much higher than people imagine, which helps explain why the study also found that firms that made layoffs their last resort and cut the fewest employees performed better than their competitors did."


I agree with Sutton's perspective, and also with those commenters who argue that a combined approach is needed - reinforcing performance management in order to remove lower performers a bit more effectively, looking at slack in the system, putting less strategic projects on hold etc.

However, one thing I think has been missing from the debate is the need to review what the business is doing, where it's going, and the resources it needs to arrive at its destination.  We always (OK, normally) have a sensible objective in mind when we recruit.  Similarly, we need to have a clear rationale in front of us when we lay off.  We need to understand how much business has or will reduce, and therefore how many people we need to implement a certain business process.  Reductions in force should be driven by the number of people we need to achieve our objectives, not simply by a desire to save costs.



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