As an enterprise-wide business partner, I have recently heard from a clients who face pressure to implement headcount reductions. These executives understand the need for belt tightening. At the same time, they are rightly concerned about long-term productivity and profitability, as well as organizational commitment, trust, and engagement. If you find yourself in a similar situation, please consider a few facts.
How Layoffs Damage Companies
According to the Conference Board’s 2023 Outlook,[i] internal focus at the C-level has elevated business performance above other issues. At the same time, attracting and retaining talent remains a top priority for the C-suite overall, with profitability and revenue growth a close second.
Some might argue that layoffs and hiring freezes – both means of reducing headcount – will drive growth and allow selective spending on the ‘right’ talent. After all, labor is typically one of the largest, if not the largest, line items in the budgets, especially for companies built on the expertise of knowledge workers.
No surprise, then, that we continue to hear of one significant corporate layoff after another. These actions are often attributed to pandemic over-hiring, economic uncertainty or slowdown, and an overall need to cut costs to meet profit margins in inflationary times.
The savvy leader looks first at the business case to support terminations.
Layoffs are not unlike a chess game. How complete is the ROI? Short-term cost savings can certainly be gained from reducing headcount; yet there are longer-term effects on productivity and profitability, including delayed product improvements, delayed product launches, and overall brand impacts, that tend to haunt organizations for years. Simply put, most organizations that lay off workers don’t realize improved profitability and instead limit their success, reducing innovation and stalling growth. History has shown this to be true.
While cutting headcount may lead to an immediate short-term reduction in spending, experience has consistently shown that even modest cuts to the workforce (~1%) typically result in significant portions of the workforce (>20%) actively considering other opportunities.
The involuntary turnover that follows can be particularly damaging. Layoffs destroy trust and negatively impact the engagement of precisely the people you don’t want to lose. Cuts lead to lost institutional knowledge you need to thrive in a competitive marketplace. Often they are focused on the people who get the work done behind the scenes so that your stars can shine brightly. Leaders supporting layoffs should be aware that your most productive, most talented employees are now at least 2 ½ times more likely to voluntarily depart.
Alternatives to Terminations
When large, highly-visible companies announce layoffs, others may begin to believe those organizations have discovered the answer to achieve spending controls. Rather than follow suit, like so many lemmings over the cliff, first consider a few alternatives.
During the uncertain early days of the pandemic, many companies identified ways to achieve labor cost savings without eliminating positions. These included reducing executive pay and allowing unpaid time off or furloughs instead of ending employment. While those actions also carry risk, any decision of this sort should be thoroughly analyzed for second and third order impacts on your long-range plans.
Process improvements may be useful as you are weighing the potential for cuts.
It’s worth looking at performance and determining whether people are meeting expectations. Leaders at all levels should do that regularly regardless of the economic forecast. Have performance expectations been clearly set forth so that people know what actions are necessary for success?
Consider your selection process. Is the organization clear on the skills needed for each role or do you engage in warm-body hiring (i.e., anyone off the street will do)?
Take a closer look at onboarding and steps taken to assure candidates are off and running once a hire is made.[ii] What can you do to shorten the learning curve, reduce time to productivity, and create a greater sense of belonging and engagement?
These process improvements will hold you in good stead irrespective of market highs and lows.
Have you spoken with your employees about the need to tighten spending?
Ask your employees for their cost savings suggestions.
Sure, you’ll probably receive many small dollar savings suggestions. Those may add up to bigger savings overall. You might even be surprised at significant solutions that employees generate, leading to long-term spending reductions while energizing the workforce as partners in taking on this challenge.
When the dust settles, you’ll still have the staff you worked so hard to recruit and train. Your projects will be on track. And your team will be energized to take on the next obstacle.
Moving Forward
If your organization ultimately decides to move forward with layoffs, consider again the second and third order impacts on your company and your employees. Similar to a chess player, thinking several moves ahead is crucial to determine the best course of action for your company, its customers, employees, and shareholders.
The consequences of layoffs may be reduced when you provide severance and outplacement services to employees whose jobs are eliminated. In addition to showing care for the individuals leaving the organization, it is reassuring to employees who remain behind. These actions can also strengthen your employment brand as a caring and trustworthy employer – worth more than you might realize when it is once again time to attract and retain the talent you need to thrive in the future. Also develop and communicate a clear strategy for moving forward, including how your remaining employees can contribute to the success of the organization. The actions you take to demonstrate care, respect, and good intentions at times like these speak volumes about you as a leader and about the organization you serve.[iii]
Good luck on your leadership journey!
[i] Conference Board: C-Suite Outlook 2023. January 2023
[ii] Check out tools, offered by companies like Mentessa – Learning by connecting, that shorten onboarding time and help new hires be more full sooner.
[iii] Courageous Clarity includes additional information on building and sustaining trust, listening to and engaging employees, and working through and around the inevitable detours, obstacles, and roadblocks that arise in every leadership journey.
This post originally appeared on LinkedIn:
https://www.linkedin.com/pulse/truth-layoffs-phyllis-sarkaria-mcec/