Layoffs not the Best Solution in a Downturn

Layoffs not the Best Solution in a Downturn

"Will I able to survive in my organization or will my organization survive in this bad time?" is a question which every person is asking himself/herself these days. In today's phase of economic recession, every organization and employee is concerned about his/her fate. Companies are trying to cut costs as much as possible and the most common way to do that is ‘layoffs’. Small, private firms do not have as much pressure to cut costs if the owner believes it is possible to ride out the storm. Conversely, in a public firm, even if a CEO is inclined to seek alternatives to layoffs, pressure from shareholders and analysts to cut staff might be too great.


Layoffs are done to save money; unfortunately, they are usually a short term fix, detrimental to the companies. In a study of 531 large organizations, three quarter reported having cut pay rolls. Out of these 85 per cent that sought higher profit, only 46 per cent saw any measurable profit; 58 per cent sought higher productivity but only 34 per cent saw even the slight increase; 61 per cent wanted to increase customer service but only 31 per cent achieved this. So layoffs are not the best option even in the period of economic recession.


Many companies fail to realize that they have already invested a huge amount on training and development of their employees. A company can save for a short term by conducting layoffs but it also has to spend more in training a new batch of employees once the economy picks up.


A company may lay off employees, but in the process it creates an atmosphere of uncertainty which causes others to leave the organization. The first ones to leave the company due to uncertainty are usually the ‘best’ people. The ones who stay back are stressed most of the time. Thus, the climate of uncertainty followed by a layoff always results in reduction in not just the quantity but also the quality of staff.


The first question to ask before any layoff is - Is the need for the layoff driven by having too many employees or too little profit? Using a layoff solely as a cost cutting measure is highly not recommended; removing valuable talent and organizational learning by laying off employees only makes a bad situation worse. And it reduces the efficiency of remaining resources as well as the potential for future growth. Scott Paper laid off 10, 500 employees in the mid-1990s. In the years that followed, Scott was unable to introduce any new products and saw a dramatic decrease in profitability, until it was eventually bought out by competitor Kimberly-Clark. If the answer is too many employees, the management needs to look at the organization's business plan, not its head count.


Whatever the route, layoffs is a toxic solution. So except in few circumstances where laying off is the only option, the management should try other options like job sharing, pay cuts, reduced working hours etc. These measures, most of the time, are sufficient to pass out a bad phase.

Ref: Kamal Kapoor