Although many companies in the technology and e-commerce spaces have undertaken mass employee layoffs in order to cut costs and prop up sagging earnings, industry analysts say that a nagging question remains.
Are these organizations paying too high a price for their pursuit of financial relief?
In the first part of its series on how this year’s tech layoffs have affected the firms forced to make them, the E-Commerce Times looked at the operational impact of the job cuts — and also found that many tech companies are reluctant to discuss the issue.
Here in Part 2, the E-Commerce Times examines the ways in which layoffs can undermine a company’s future recruitment efforts and reputation, trigger a backlash among remaining employees, and enable more stable firms to benefit.
Toil and Trouble
While workers who have recently been terminated must contend with securing a new position during the current round of economic uncertainty, they are not the only ones feeling the pain.
According to Gartner vice president and research director Diane Tunick Morello, the layoffs of the past six-plus months have sown the seeds for massively disruptive turnover among employees whose positions were not cut.
“The work doesn’t go away and somebody else needs to assume it,” Tunick Morello said. “It’s just a financial trick. That assumption is going to cause the next round of real despair and resentment on the part of workers.”
Looking for an Out
Tunick Morello added that “if you’re going to cut people, you better make absolutely sure that the people you are cutting are not people who are doing a substantial amount of work.”
As a result of their increased workload, overburdened employees will likely feel exploited and burned out, Tunick Morello believes.
“If you continue to pare … down, you’re going to end up with a group of mean employees,” she said. “Not lean and mean — just mean.”
Even more problematic for employers, she added, will be workers who begin committing “subtle acts of sabotage” in an effort to put on the brakes and regain some balance. To this end, some employees might curtail the amount of work they are willing to do or simply refuse to do overtime.
Others will look for ways to leave the company entirely, according to John A. Challenger, chief executive officer of job placement firm Challenger, Gray & Christmas.
“Workers will decide to go find a place where there’s more safety, more promise and a better environment,” Challenger told the E-Commerce Times. “It makes it very hard to work long hours and keep the spirit and morale up because of the upset (in the wake of the layoffs).”
In addition to damaging employee morale, industry watchers maintain that job cuts may hamstring a company’s future staffing efforts when new demands crop up.
“When a business demand really arises and you need new talent and new knowledge, the organization itself will be reticent and maybe legally prohibited from recruiting anybody else,” explained Tunick Morello. “That can be a real problem if you have new clients or new work coming in.”
Moreover, Tunick Morello said that companies that hand out a flurry of pink slips jeopardize — if not completely sacrifice — their image as well as community loyalty. At a minimum, layoffs should be administered with care.
“The vendor space is a highly connected community and a company that mistreats people or that is very callous in its layoff process could be irrevocably ruined,” said Tunick Morello.
Despite the overwhelming evidence that employee layoffs can weaken a company organizationally and operationally, they have an upside.
In some instances, the cuts have allowed firms — particularly those that sell products and services online — to spread out their limited capital.
“That buying of time is very important to many companies in the e-commerce space, since they’re dealing with the equally important question of when will the habits of businesses and consumers change sufficiently to allow them to be successful,” said Challenger.
“It’s not just how you execute, what you’ve got, and the products you come up with,” Challenger added. “It’s also waiting for the world to catch up with the technology.”
Returning to the Core
In other cases, the reorganization may allow a company to refocus on its competencies by divesting or closing businesses that were a distraction to its core operations.
“That’s very much in thinking with many of the company perspectives that are out now,” said Tunick Morello. “Really zeroing in on what you’re good at and having other companies provide you with the services and the products that you’re not good at.”
With firms that have been lax in managing performance issues, Tunick Morello noted that the layoffs also may provide an opportunity to create a stronger and leaner organization.
At the same time, industry analysts point out that one company’s loss may well wind up being another’s gain.
“There are people out there who you can now recruit that might not have been available to you before,” said Tunick Morello.
“To keep it in perspective, technology companies are really a very small percentage of employers out there, despite all the noise that’s been made about them,” she added. “There are hundreds of thousands of people that are employed by user companies and those user companies are in great shape.”
Look Who’s Hiring
For instance, a report released in May by the Information Technology Association of America (ITAA) concluded that there is an overemphasis placed on technology companies in regard to their employment of IT professionals.
In fact, the ITAA found that for every one tech company there are 22 non-tech firms hiring IT workers. The ITAA also found that non-tech companies employ 10 times more IT workers than do tech firms.
“If you are a company that is well run and really takes pride in your employees and how you manage them, then this market is a gold mine for you,” said Tunick Morello. “The companies that act upon the fact that people matter to their success will be the winners in the long run.”