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How not to lay off employees

Posted on January 27, 2009January 27, 2009 by Staff

By Margot C. Lester
Staff Writer

Outlasting the traditional shotgun blasts that rang out the old year here in the South was the din of business owners and managers wondering out loud about the fate of their enterprises and employees. Though layoff statistics for 2008 won’t be available till later this month, thousands of employers across the nation and in our own backyard are closing up shop or cutting head counts, putting many more people out of work. Yet some business owners are managing to avoid such dramatic actions. Which begs the question, how?
Related Story: Doing more to keep your job

A study by H.R. Chally looked at the history of recessions and the differences between winners and losers coming out of them.
“To net it out at the highest level, losers tend to knee-jerk react,” says Dave Roberts, adjunct assistant professor of sales discipline at the UNC Kenan-Flagler Business School. “They go very tactical and tend to make rapid reactionary decisions which are not always the right things to do.”
The key, Roberts says, is to remain strategic, even though every bone in your business body may be telling you otherwise. That means:
Tend to core business: According to the research, losers typically react to bad economic times by slashing expenses and employees. But winners, it turns out, do the exact opposite. They look for opportunities to increase business strategically. “Now is the time to be objective and think through what your growth strategy should be. You need to get brutal about prioritizing activities,” Roberts asserts. “Ask yourself what you’re in business to do – what’s at your core – and find ways to maintain or develop your ability to deliver around that core. Where are the customers or markets that are most promising? What products and services will you rely on to serve them? And how can you efficiently get them to market?

Identify money wasters: To find better ways of cutting costs, dig into internal systems and identify cost “sinks” – places where economies and efficiencies can be improved, suggests Robbie Hardy, a Chapel Hill-based serial entrepreneur who’s had to lay employees off herself. “Look at your numbers every day and ask employees how to reduce costs and increase margins. Make them a part of the solution,” says Hardy.

For example, when investment brokerage Charles Schwab was in turnaround, it created a team of insiders to look for cost-cutting opportunities that would improve operations and service. The result? Costs were shaved by $600 million.

Right-size clients and offerings: Instead of chasing any potential client with a pulse, prune your prospects and customers down to those who are truly valuable to your core business, Roberts advises. And rather than slashing prices to increase sales volume, consider this tidbit: The Chally study shows that companies who survive bad economies best actually raise prices during tough times.

Cut pay, not jobs: “Sometimes if you can reduce everyone’s salaries, you can avoid a layoff completely or do a smaller one,” Hardy says. That’s what Hewlett-Packard did back in the 1980s. Instead of laying folks off, everyone took a 10 percent pay cut for about six months. This enabled the tech giant to cut costs without losing talent or totally killing morale. It’s also a good idea to give as much notice of the cuts as possible, Hardy adds. “Tell them to start being frugal now, before the cuts come.”

Unfortunately, even if you follow this advice, you may still have to bite the bullet and hand out some pink slips. In that case, it’s crucial to be communicative and honest, says Hugh O’Neill, Edward M. O’Herron, Jr. Distinguished Scholar and professor of strategy and entrepreneurship at UNC Kenan-Flagler. “As obvious as it may seem that layoffs are necessary, they are often a surprise to the workforce. Some corporations do try to avoid giving people bad news so they don’t say anything about what might be coming. When they do, it’s a shock.”
Instead of withholding the bad news, talk about it. This means providing information on corporate performance, benchmarks and timeframes for making decisions as often as possible. Management should indicate things they’re trying to do to take steps other than layoffs to solve problems,” O’Neill adds. The information helps employees see the reality, and it keeps those productivity-killing rumors to a minimum.

And when the cuts do come, communicate with feeling.

“Frequently corporations don’t communicate anything that indicates a sense of empathy for the laid off,” O’Neill says. This tactic not only is hurtful to those who are laid off, but is damaging to those who remain. “They feel a guilt that leads to a set of cultural issues. And the level of the guilt is a direct function of explanations managers use to justify layoffs, and the perceived equity workers feel. It’s manifested by low morale, increased absences, lack of willingness to do extra work. There’s also a fair amount of lost time due to people consoling each other.”

There’s no way to completely avoid the impact of a bad economy, but it’s definitely possible to mitigate negative consequences. Companies that do that tend to come out of turbulent times in good shape – and you want to be one of them.

“They have more market share and motivated employees, and they generate more revenue and margin,” Roberts says. “So being strategic and thoughtful seems to suggest success.”

1 thought on “How not to lay off employees”

  1. Sophie King-Lowe says:
    January 27, 2009 at 6:45 pm

    Excellent business advice, from people who work for a large State funded institution.

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