To Layoff or Not to Layoff
by Miki Saxon
How smart are layoffs—that is the question.
Based on statistics they’re pretty dumb. And not just for those directly affected, but for the repercussions that will echo through your company long after the actual firings.
According to Think Before You Fire in Business Week,
“For companies, layoffs are a quick, albeit unpleasant, way to trim costs, right? Not necessarily. A recent study of 200 enterprises found that even a modest downsizing can unleash an exodus of valuable employees. For instance, companies that laid off 0.5% of their staff experienced, on average, a turnover rate of 13%—compared with an average turnover rate of 10.4% at companies that didn’t do layoffs. (Academy of Management Journal)”
Not only is that additional 2.6% of turnover expensive, it usually includes the people you least want to lose.
Beyond the effect on your people is the fact that the smartest companies use a downturn as a time to grab market share, acquire companies, and push innovation so they have new products ready when things turn around—and the always do.
This is just as true for small business as it is for large multinationals.
Way back in 2001, when thousands were being laid off, Frederick Reichheld, author of The Loyalty Factor (1996) and Loyalty Rules! (2001), showed in carefully researched studies that a 5% improvement in employee retention translates to a 25%-100% gain in earnings.
So why are companies so quick to cut staff?
Because layoffs take the least creative effort from management and Wall Street approves.
Keeping your people and juicing innovation and productivity when times are difficult takes work—lots of it.
Image credit: webSlave05 CC license
