Harvard Business Review: The Layoff. Making the tough decision.

This Harvard Business Review does a fantastic job at illustrating the atmosphere in a company that is undergoing extremely tough times where management have to make difficult decisions to ensure company’s survival.  What interested me the most about this review was the different leadership and problem-solving styles seen from the management team at Astrigo and the commentators offering solutions for the problems at Astrigo.

So is there a truly good way of doing layoffs? I don’t believe there is.  Many companies claim that layoffs are their last resort but I don’t buy that.  I think layoffs are far too common.  I think many companies blindly chose to go this route without properly considering and evaluating other alternatives to cut cost.  What I’ve also noticed is that many times layoff become more than a tool to cut cost, they become a measure for a companies success, especially in public companies.

Many companies’ justification for layoffs is their shareholders satisfaction.  What they fail to recognize is that their employees are also their shareholders.  Bob Sutton does a fantastic job describing the short-term and long-term effects of layoffs in his commentary of this case.  There are many long-term effects when a layoff occurs and, as simple as it may be, many companies fail to clearly evaluate these effect prior to the layoffs.  Layoffs obviously hurt the people who will be losing their jobs, but they also bring down the moral for those who remain employed.  Employees will either be scared for their jobs or worried that the company is not going to recover.  In either case, employee performance decreases.

Additionally, many companies lack to define a clear path for what next steps are after the layoffs have occurred.  They don’t have a clear idea as to when to expect a turnaround.  The executives at these companies just assume that after layoffs everything is going to be better.  This lack of knowledge results in companies exercise one layoff after layoff, further lowering the moral in their companies and the trust in their shareholders.

Layoff should truly be the last alternative.  there should be a clear path defined for every step of the layoff, start, severance packages, and end.  Communication is the key.  Both employees and shareholders should know why the layoffs are happening, who will be impacted, when the layoffs will end and what the expected result of the layoff is.

Finally, a company is a family, when a company goes through tough times it should have an impact on all the members of the family not just some.  As a member of executive, you cannot enforce or suggest a layoff when you are still receiving hefty bonuses and enjoying a lavish business style.   Not only this is demoralizing for the employees but it’s also insulting.

In my opinion, in tough times, the suffering should come from top to bottom not the other way around.  If reducing cost is of interest, and if all other measures to reduce cost have failed, executives should be first to take a pay/bonus cut then the management and finally the employees.   Once this has been met, if the company is still suffering, the executives and management should meet to discuss a layoff plan and a clear path in and out of it.  this plan should be clearly communicated to the employees and shareholders to maintain moral and trust.

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~ by aliahmadian on April 13, 2010.

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