Managing Outflow

Layoffs

HR’s “Unspoken Challenge”

• Attract• Motivate• Retain• REDEPLOY

Roles of HR:

Views of Layoffs

Layoffs are now “radical first aid [for] healthy companies hoping to reduce costs and shore up earnings by reducing head count”

(White Collar Blues, 2001)

Layoffs and Profit• Profitability increased in half of firms• 5% increase in stock price of

downsized firms vs 34% increase in matched firms

• 10% layoff 1.5% reduction in costs– Separation costs– >50% of companies rehire employees

as consultants– Loss of human capital

Views of Layoffs

“CEOs who want to keep their jobs must be willing to cut others when earnings decline. They must take money away from those who built the company and give it to those who financed it” (Lewis, 2001)

Views of Layoffs

“So far the layoffs seem to be giving companies the flexibility they need to maneuver through the downturn. The burning question is this: At what point do layoffs make consumers nervous enough to quit spending and bring on a recession?”

(White Collar Blues, 2001)

Distinguishing Symptoms, Problems, Causes, Solutions

• The symptom may be low profitability

• What’s the underlying problem?– excessive costs?– inadequate revenue?

• What’s the cause(s)?• What are potential solutions?

What’s the Goal?

• To maintain profitability, growth, survival

• NOT to cut costs, reengineer, or lay-off• Means-End Inversion: presenting a

potential solution as the problem:– “How do we effectively layoff 17% of our

workforce” vs.– “How do we maintain competitiveness”

Alternatives to Layoffs

• Wage/Hiring Freezes• Attrition• Voluntary retirements• Redesign/reengineering/

redeployment

A Three-Step Approach to Layoffs

• Restructuring• Reselection• Deselection

Strategic Restructuring

• What is/will be the mission of the firm?• What are the core tasks/competencies?

– What activities truly add value, and what activities are peripheral?

• Peripheral activities should be the focus of cost reduction– Eliminate– Outsource– Re-design

Strategic Restructuring

• Review efficiency of core functions• Project future demographics and

skills– Take steps to retain key people/skills

• Maintain critical infrastructure– e.g., many HR functions become more

critical (e.g., outplacement, training)

A Three-Step Approach to Layoffs

• Restructuring• Reselection

– New job descriptions, new performance attributes

– Internal recruitment/selection/placement

• Deselection

Deselection

“Companies have become so proficient at the science of layoffs that many have forgotten there’s an art to it” (Boyle, 2001)

Critical Implementation Issues

• How many to cut– “Corporate anorexia”– Cut deep the first time

• Where to cut– Across-the-board % cut vs. strategic

• Who to cut– Seniority; performance; critical skills

• Communicating the decision– Group or individual announcements?– How much explanation?

Keys to Successful Layoffs• Involve all key players

– HR, Finance, Legal, Operations– Including employee involvement

• Establish objectives and timetable– Plan for one major cut to meet

objectives• Plan for costs

– Separation packages– Lowered productivity in short term – Effect of customer confidence

Critical Implementation Issues:Timing the Announcement

Keys to Successful Layoffs

• Clear communication– Early indications of problem– Explain business justification—clarify

it’s not employees’ fault– Articulate new vision/direction – Timetable and rationale for

terminations– Don’t forget the community

Keys to Successful Layoffs

• Treat employees with dignity– Personal delivery of bad news– Acknowledge feelings, but don’t be

defensive or make promises

• Provide support for those being laid off– Outplacement, training– Use of company resources for job search

Keys to Successful Layoffs• Consider needs of “survivors”

– Fair treatment sends critical signal– Need clear direction and goals– Reassure about their importance and

future– Allow time for mourning– Monitor workload and training needs

Keys to Successful Layoffs

• Plan for lowered efficiency in short term

• Retaining critical people– Clear vision for success– “Golden handcuffs”– “Stick With Us” Bonuses