Monday

Five Reasons Why Layoffs Are A Bad Idea


Dr. Wayne Cascio is a professor of management at The University of Colorado at Denver. He is the past chair of the Human Resource Division of the Academy of Management and was the past president of the Society for Industrial and Organizational Psychology. In 1999, he received the Career Achievement Award given by the Human Resource division of the Academy of Management.

Here are his five reasons why downsizing is simply wrong:

a. Reason #1: Downsizing does not automatically make a company more profitable nor perform better.

Research done over the last eighteen years, along with surveys done by the American Management Society and Society for Human Resources Management, show that only one-third of companies that downsize end up being more profitable. A remaining one-third report no change from before the downsizing, and the final one-third actually fall even further after downsizing. Meanwhile, stable companies (meaning companies with less than 5% staff fluctuation in any given year) outperformed companies that downsized in almost all cases."

b. Reason #2: Layoffs are a quick-fix solution to a long-term problem.

Layoffs represent a “band-aid” approach. Any benefits are purely temporary and do not address the long-term issues. Long-term problems need long-term solutions. These long-term solutions include figuring out how to attract new customers, what new products and services to offer to consumers, and what potentially profitable new markets should be expanded into. Long-term solutions require long-term thinking, not focusing on what can fix the problem for right now.

c. Reason #3: Layoffs do not capitalize on the "share-the-pain" philosophy that bonds employees as friends.

Employees have often worked for many years with each other and see each other more than they even see their families and relatives, so it is inevitable that they will also be friends. Survey after survey shows that employees would make individual sacrifices (such as reduced hours, job-sharing, pay cuts) to avoid their co-workers being laid off.

d. Reason #4: Firms often find that they wind up hiring back at least some of their laid-off employees as consultants -- at higher salaries

The companies wind up hiring back laid-off employees at much higher consultant fees than they were making previously as employees. This "re-hiring" happens because management realizes too late that they lost institutional memory and valuable skills in laying off people.

e. Reason #5: Too many decision-makers don't ask the all-important question first: "How will downsizing allow us to serve our customers better"?

If decision-makers cannot answer this question definitively, they have not thought the matter through carefully. Customers are income, and if downsizing does not allow for better service that will result in higher income, it's best not to go there in the first place.

21 comments:

Frank Markow, Ph.D. said...

Jeffery Pfeffer said this and so much more in 1998 (Human Equation). We give lip service to the notion that "employees are our most valuable asset..." put they typically are the first on the chopping block when things get tough. Why not get rid of another asset, life the corporate jet?!? Anyhow, I wholeheartedly agree with Wayne's assessment, and fear that, if companies continue this trend, they will pay for it in the long run.

Andrea Markowitz, Ph.D. said...

More reasons why layoffs don't work: layoff survivors become preoccupied with wondering if/when they will be laid off, and spend some of the time they're supposed to be working worrying about their futures and looking for another job; productivity suffers because of the worrying (including time spent gossipping and speculating about who will be next); productivity also suffers because of time spent looking for a new job. Layoffs also lower survivors' morale (some survivors experience "survivor guilt"). And the work quality suffers when those who remain are expected to complete more work in the same amount of work hours.

T L C said...

Another reason downsizing does not always work is that those let go often end up working for your most rivaled competitors. If an employee does not have a non compete agreement, they often share success secrets from their former employers, so a company's best ideas get used by those they least want to know about them.

Jamie Showkeir said...

I am in total agreement with both the blog and the comments. My experience is companies that refer to people as "labor costs" or "overhead" or any number of other mechanistic terms, continue to see people as resources. As long as that view persists reducing the use of "resources" is a viable choice. Recognizing it is only people that give any company a true differential advantage steps in the direction of creating cultures where layoffs become a thing of the past and investments are made in building the capacity of people.

CV Harquail said...

Cascio has the best books out there explaining the problems associated with layoffs and recommending alternatives. I recommend his work to many of the managers that I work with.

Recently, I cited Cascio's work myself in a few articles on alternatives to layoffs, and on the truths and lies that keep organizations from considering alternatives. These include
(1) Lemmings really do believe that layoffs work.
(2) Too many believe that "Workers are Widgets".
(3) Real Men Wield Axes-- it isn't managerially macho to look at alternatives, And,
(4) I’m the Lumberjack so I’m Okay. -- Too many think that if they do the cutting, they themselves will be safe.

I'd love your thoughts on the ideas... www.AuthenticOrganizations.com

Jeff Baker said...

I like the idea of people taking salary cuts together. It's not pleasurable, but I imagine how much closer it brings people together as a community and not just a company. Also, from a business point of view (assuming that everyone including the CEO takes a cut in salary), think of the employee loyalty that would be fostered.

Ron said...
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Ron said...
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Ron said...
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Ron said...

Layoffs effectively "fire the consumer." Authorities such as William Greider (The Nation) have long argued that the global economy needs DEMAND, not Supply. We postponed this day of reckoning by infusing credit (& therefore debt) into the consumer. That option has been exhausted. View the documentary "The Take" for more information ( http://www.thetake.org/ ).

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