Your values are showing. Tough times are when the tide goes out to sea and exposes the jewels or junk that’s been under the surface. Words like, “our people are our most important resource” now prove to be empty rhetoric or compassionate reality.
Leaders who care about people and building long-term trust, treat layoffs as the very last, desperate step. These leaders operate from core values of partnership and participation.
None of us have ever been through a global pandemic like this before. However, we have been through economic shocks before. We can look back to those experiences for leadership lessons on navigating through the financial crisis many companies now face.
A major lesson of the 2008 financial crisis and the following recession revealed that downsizing was often dumbsizing. Many research reports showed that layoffs sometimes provided short-term relief but hurt most companies in the long-term:
- A study in the Academy of Management Journal, found that big layoffs often create even bigger turnover spikes soon after. One finding states that laying off just 1% of the workforce caused a 31% increase in turnover.
- Only about a third of downsizing companies increased productivity and profits in the next 3 to 5 years, and underperformed in stock markets. Another study found that lean — and mostly mean — companies who reduced workers by 10% gained only a 1.5 percent reduction in costs.
- The Wall Street Journal, determined that downsizing companies outperformed the S&P 500 only slightly during the six months after a re-structuring then dropped to negative 24 percent by the end of three years.
- Jim Collins’ Good to Great research determined, “half of the companies we were studying didn’t do it (layoffs) once. The other half, with the exception of one case, only ever did it once or twice. When you look at the comparison companies you find a very different pattern. They had an almost chronic addiction to layoffs and re-structuring. They often tried to improve performance by hacking out the cost of people.”
As Yogi Berra might say, it sure ain’t rocket surgery. Downsizing crushes morale and productivity. Leaders who see people as “assets wrapped in skin” quickly jump to downsizing and layoffs without fully exploring the myriad of alternatives that are much more inclusive and treat people as valued partners.
Alternatives to Layoffs
Emotionally intelligent, people-focused leaders find ways to reduce costs rather than chucking people overboard like useless ballast during the storm. This might include:
- Furloughing people to keep them on staff until business picks up. Some government programs can help with this.
- Redeploying people to revenue-building positions.
- Asking for volunteers to reduce hours, take unpaid sabbaticals, temporary layoffs, or a leave of absence. Ideally, that’s coupled with keeping their benefits going and staying in touch.
- Offering early retirement or voluntary separation packages.
- Reducing wages for everyone with the highest percentages with senior and middle management.
- Offering company shares or profit-sharing as partial compensation for reduced wages.
- Reexamining perks and benefits.
- Identifying and removing underperforming supervisors and managers, especially those with weak people leadership skills.
- Exploring work sharing options with reduced hours for everyone.
- Not replacing people who leave or retire.
- Lending or “renting” staff to clients or external partners.
- Exploring or pilot testing cross-training or cross-functionality opportunities.
- Fostering “intrapreneurship” — encouraging/supporting people to look for new revenue-generating businesses, start-ups, or market opportunities the company could fill.
- Offering employee buyout opportunities on businesses, product lines, or divisions that might be closed.
- Taking losses now to be ready for the rebound.
Doing it with, not doing it to, people in your organization is to partner rather than to patronize. That’s a true reflection of “we’re all in this together.” Many of the above options should be explored in forums, discussions, or surveys to involve everyone. This could include exercises like “work out,” “dumbest things we do,” or “moose hunting.” Through surveys, meetings, e-mail polling, “town halls,” (or video conferencing), and the like, managers facilitate brainstorming, get input, set priorities, and make joint decisions and action plans. An experienced external facilitator can be a big help.
These times also accentuate the power of decentralized decision making. A study by Harvard Business School professor, Raffaella Sadun found that companies delegating decision making further down the organization did much better in adjusting to local conditions or in their functional areas.
Dealing with these extremely emotional and difficult issues demands lots of personal communication to balance electronic and human connections.
Great leaders have long practiced: we’re all in this together. On a rainy day in 1943 a battalion was lined up waiting for an inspection by Lord Mountbatten. The officers wore raincoats, but the troops had none. They were soaked. Mountbatten’s car pulled up, and he emerged wearing a raincoat. After taking a few steps, he turned around and went back to the car to shed his raincoat. He then turned to make the inspection. The troops cheered.