Traditional layoff tactics may serve to cut costs, but they often cause damage both inside and outside the company that is hard to repair. A more thoughtful and strategic approach to layoffs will ameliorate the short-term impact while leaving the company poised for growth in the next few years.
As the economic crisis unfolded and the need for cash became vital, corporate leaders had no choice but to rapidly and decisively reduce their workforces. This has led to numerous rounds of layoffs in many industries in North America, Europe, and elsewhere, and continuing uncertainty about the economy is likely to lead to more.
But many executives also remember the lessons of past downturns. Layoffs are difficult and gut-wrenching and often fail to deliver expected cost savings or improved performance. In many cases, slashing jobs en masse serves only to weaken a company, leaving it vulnerable to competitors and constraining its ability to lead its industry in the future. That was problematic in past recessions, but it will prove particularly untenable in this period of dramatic discontinuity, when whole industries are shifting and the dominant players may well change.
Many corporate leaders are already rethinking their overall strategy with respect to target customers, capital sources, product portfolios, pricing, investments, and cost structures. But to implement these changes, they’ll need to have the right talent in the right roles. Workforce reductions — those that companies have already conducted and those still to come — must not only deliver sustainable cost savings right now, they must also leave skilled and motivated people in critical positions to maximize the enterprise’s present and future success.
How does a company achieve these seemingly conflicting objectives? It can’t be done with the same approach that many companies fall back on: across-the-board cuts that seek “fairness” at the expense of competence. Instead, it requires institutionalizing a set of processes that we call “talent fitness,” systematically matching employees’ capabilities to the strategic needs of the enterprise: the right people in the right jobs at the right price in the right geography, and with the right critical capabilities the business needs to sustain itself and grow. When this regimen is followed, layoffs themselves become less painful, more cost-effective, and (perhaps most important) more understandable to the people of the organization.
Taking these five key steps will go a long way toward building a more effective workforce reduction process, while increasing confidence in a company’s leadership — and helping to ensure that the company has the right talent in place as it emerges from the recession.
Step One: Stanch the Bleeding by Making Smart Cuts Quickly
First, if the company hasn’t already done so, make selective cuts that can be easily identified. Set criteria for “smart cuts,” and then ask leaders throughout the organization to identify individuals who meet these criteria. Some examples of obvious targets:
- Volume- and production-driven jobs: positions that provide coverage for demand or growth that has evaporated in the downturn and will not come back.
- Chronically poor performers based not on a “rank-and-yank” percentage-based system that boots out the bottom 10 percent, but on either established long-term competency appraisals or a survey of supervisors.
- People whose competencies no longer fit the company’s future direction.
Beyond these cuts, do not lay off more people even if further cost cutting is necessary. Instead, pursue creative alternatives to further reduce labor costs while minimizing the negative impact associated with layoffs. The options for doing so are many, and include offering voluntary leaves of absence without pay, using contractors or part-time staff to reduce benefits costs, placing qualified employees in value-added joint ventures or startups with separate P&Ls, and reducing hours or establishing furloughs.