The Upside of Downsizing

Few companies would be likely to admit it, and even fewer would be willing to talk about it publicly, but layoffs can have business benefits that go well beyond short-term cost savings. When done right, they can even help improve morale by reassuring employees that their employer can make tough decisions for the good of the business.

“The benefits are easier to spot when a company is obviously cutting fat, not muscle or bone,” Carnegie Mellon University management professor Alan Montgomery told the E-Commerce Times. “It gets more tricky when people look around and see people who they feel are good workers being let go.”

Friendly Reminder

But even in those situations, layoffs can still pay dividends. For starters, remaining employees may get a wake-up call, according to John A. Challenger, CEO of outplacement firm Challenger, Gray & Christmas.

“Employees can react in one of two ways,” Challenger told the E-Commerce Times. “The goal of a smart manager is to make sure they react by working harder. In a difficult job market, theres less danger that people will leave out of frustration.”

Companies can minimize fallout, Montgomery noted, by ensuring that details of a layoff are handled carefully. That means not letting word of layoffs leak to the media before workers learn about them and making sure that employees who are staying do not witness outbursts from laid-off workers.

“Little things like that do matter,” he said. “If someone leaves angry, that might [add] a different type of fear to the mix for the employees who remain.”

Please Stay

Challenger said the biggest concern employers have is making sure that their best workers — the ones they rely on most to get the company through bad times and help it rebuild when things turn better — do not decide to leave when layoffs begin.

“Smart companies don’t just announce layoffs. They make it clear there is a bigger picture, a long-range plan for the company’s health,” he added.

And while a major round of cuts may have more of a short-term impact, it may be preferable to repeated smaller layoffs, which can lead to more worries for workers.

“If it happens every couple of months, that can be very distracting for workers,” Montgomery said. “Better to get it over with as much as possible and let people put it behind them and move on.”

Production Assistant

Companies also can benefit by realizing they can do more, or at least the same amount, with less. Having fewer employees forces managers to more carefully control work flow. In some cases, layoffs may result in organizational changes that make a company more efficient.

“A company that downsizes right will be better prepared to start hiring strategically at the start of an upturn, when the most highly skilled workers are still available,” Challenger said.

In the end, Montgomery added, how well planned and carried-out layoffs are will determine whether a company sees benefits. “It kills some companies, but others do emerge meaner and leaner,” he said.

1 Comment

  • We are entering a time of dichotomy. A time in which the urge to move people out of jobs is as great as the movement to cut holes in the social safety that was put in place to support those who had no other source of income. The first great outflow of employment sent millions of manufacturing jobs to cheap overseas firms, while keeping management and services here. The resourceful Americans re-focused, re-trained and re-tooled to become an Information Services economy.
    Now, we find in the second wave those service and support positions being outsourced to foreign competition (or non-benefited contract labor at greatly reduced rates). Apparently the only jobs that cannot be sent overseas are food service, department store stockers, delivery drivers, and healthcare providers. Tele-medicine shows promise in exporting healthcare to overseas physicians and surgeons thanks to heavy investment by HMOs, so we may have all but the most basic of nursing care may be subject to export.
    The upper management and members of corporate boards seem to feel pretty secure that they can produce their product and maintain accounting functions with overseas labor, while selling the product to an increasingly underemployed US population.
    After moving all production and services to foreign countries, the burgeoning middle and upper classes of those countries create the wealth necessary to purchase the companies for which they work and move MANAGEMENT and the BOD closer to home. At that point, the US will cease to matter on the world stage. We will neither be the producer nor the great consumer of the world’s goods. Then, the displaced workers will band together to surround the equally displaced managers and directors who made the decisions and eat them.
    Bring catsup.

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