Time to Rethink the Layoff

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Many companies use the layoff as a tool to manage their human resources capital, but it may be time to rethink that practice. Taking into account the efficiency and labour costs of their businesses, many CEOs use layoffs as the primary way to reduce costs, thinking it the most efficient way to do so. The costs of layoffs, however, may be more than CEOs ever anticipated, and HR professionals have to be able to convince their senior leadership teams of the true price of layoffs.

Some interesting research from an article in the Harvard Business Review (HBR), regarding what happens to companies after layoffs, shows that a 1% downsizing can create a voluntary turnover rate of 31% a year later. The article continues on to state that companies that were able to keep on employees during an economic decline actually did very well in coming out of a recession and beating their competitors by 10% in sales and growth.

What can companies do instead of layoffs? Here are some potential strategies for success that companies could implement before or during an economic downturn:

  • Preparation for an economic crisis before it hits; in other words, having a contingency plan in place.
  • Decentralization; decentralized companies do better than centralized companies in times of economic crises.
  • Implementation of alternative options to layoffs, such as reduced work weeks for employees.
  • Investment in technology; for better preparation in the future.

During this pandemic, businesses have been placed under tremendous economic pressures and millions of workers have been laid off. Organizations that can weather the storm and keep on as many employees as possible will be better off in the future, according to the HBR article.

Discussion Questions:

1. Research an organization that has been successful in avoiding layoffs during economic downturns and summarize the main strategies they used. Use that research to assist your presentation development for question 2.

2. Develop a 5-minute presentation to review the top ways to avoid layoffs and still reduce labour costs for your VP of HR.