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When economic adversity collides with our business plan, our response to the cost issues must be prompt – and it too must be right.
We know that there are a multitude of costs related to our people. Reducing their hours to find some short-term relief may ultimately prove to be ineffective. Tackling these current and prospective costs too often leads to layoffs. Google CEO Sidar Pachai notes that, “There's always a good reason for the layoffs that has something to do with making the best decision for the future. The thing is, the only reason you're faced with this decision at all is because whatever you thought was the best option before didn't work out.” While a layoff may be a right option let’s not miss some real hazards. If resorting to layoff is the course you elect, be ready to hack your way through a jungle of employee relations issues.
There’s always a nagging concern that a single layoff may cut too deeply, or not deep enough thus positioning you for “death by a thousand cuts”. Certainly, a simple percentage cut of total staff may not retain the right individuals to sustain the business. After any layoff there’s still business to transact. Who’ll be there to do it? And as our living enterprises inhale and exhale, let’s not assume that once they’re laid of people may readily return, because with limited exception, they won’t.
Addressing all the what-ifs and replacing annual business planning with continuous business and staffing assessments, minimizes the most serious mistakes – and surprises.
In considering impacts of a staff reduction, we immediately go to the obvious – layoff means that those laid off employees and their families will lose their essential income. They may also suffer other traumas including the fear for their survival, and a doubting of their self-worth. But the survivors are also victims. There’s survivor’s guilt. They also take note of how management treated their laid off colleagues. The layoff events provided them with a new window into the caliber and character of their managers. The process will have a lasting influence on survivors’ loyalty and productivity. In this now uncertain environment. do they want to stay and see “how will I be treated if my time comes?” Layoffs deliver clear and lasting messages to the people who have kept their jobs.
Survivors need to be nurtured as the long- term assets that they are. Any added employment trauma or surprise could shake them to consider the other job options which they all have.
While they’re your employees, these folks are in your business every day. They will sense emerging changes. If you don’t openly share the state of the business, they will then presume “facts” – often the worst – to fill any information voids and to help gird themselves for whatever else may be coming. If the business is in a rough spot they sense it, even when they don’t have the precise details. Meanwhile, their experience could make them great resources to help address the coming business challenges. It’s important that we engage with our staffs to share information with them, and also to provide an easy avenue for them to support implementations and to share their insights with us. In fashioning an eventual turnaround why wouldn’t we want to draw on the people who know our business best?
If in response to threats to your business you prepared to aggressively wield the layoff axe, first give due thought to whether you’re losing and keeping the right people. Remember, those you layoff won’t be there to help fix the issues, or to help re-launch the eventual return to “normal” operation. A substantial layoff may be satisfying to lenders and investors who often applaud anything that looks like cost cutting. Keep in mind that in a difficult business environment a layoff action will compound the turmoil. Layoffs implemented for savings can actually produce some offsetting costs, e.g. lost productivity and employee turnover. Additionally, future hiring prospects who may otherwise be right to meet critical needs will know how staffing adjustments were managed, and how employees were treated. Social media shares everything.
The skills of orchestrating a layoff go well beyond the writing of pink slips.
In the recent pandemic, through the great recession before that, and now into whatever is next, every business owner and leader knows that absent the prudent management of employment costs an entire enterprise, and all its employees, are jeopardized. Stepping outside of extreme or timid cuts, there are the courageous business leaders who carefully consider the options to address each risk. For example, facing the recent pandemic, New England’s Russell Morin Fine Catering was threatened by an empty order book and phones that had stopped ringing. Owner Russell Morin elected to prioritize the long term and hold onto his loyal people. He decided to layoff no one. His business swallowed millions in unproductive payroll dollars while it kept its eye on the long term. When customer demand reemerged (at a clip beyond pre-pandemic levels), Morin’s operation stood ready, still supported by 147 of its 150 critical people. (Just how Mr. Morin and his team were able to navigate the storm and make it all work will be further examined in an upcoming Standish Letter.)
Whether it’s your business, or the business of Macy’s, Amazon, Google, Microsoft, Meta or others facing a staff reduction, we do note when they’re bolstered by an ongoing and effective staffing process – a process that integrates talent attraction, deployment and retention to ready the business for whatever may be next. It enables management to address emerging cost swells with a timely scalpel rather than a desperate hatchet.
When Google was faced with recent staff reductions, their CEO Mr. Pachai observed that, “it seems reasonable that a better way to increase profitability is to make better bets in the first place.” In continuous planning, we’re always at that “first place”.