Does your business lose if you scrooge?

When times are tough and costs need to be cut quickly, the size of the payroll often becomes the main focus. Mass layoffs and the shared sacrifice of voluntary redundancy can spread through the business world like a virus.

Often justified as ‘downsizing’ or ‘rightsizing’, these corporate terms may not seem quite as disturbing as ‘collateral damage’, which is how the military explains or defends the consequences – intended or otherwise – of armed conflict. Yet each term shares the same intent: to obscure the truth. They’re more palatable than the reality: sackings, layoffs and redundancies.

Tackling downsizing with a gentle hand

There’s another link, and it can be a problem if not handled appropriately. Downsizing, particularly when managed badly, can cause widespread damage. Rather than deliver the desired outcome, the result is shock and awe. The cost of cutting to lift profits is a traumatised workforce, the loss of key personnel and, with them, business knowledge.

Of course, there are conditions under which redundancies are the only option. Newspaper publishers are scaling back, the vehicle industry is struggling and many manufacturing jobs have been outsourced offshore due to high labour costs.

But many companies downsize as a knee-jerk reaction to a short-term problem, and often underestimate the immediate and future costs of their actions. The fact is that those who can restructure without mass redundancies appear better equipped to ride out economic storms, and sometimes even become stronger and more profitable in the process.

Change your perception of employees

University of Colorado professor Wayne Cascio sees staff as an investment into the future of any company. His book, Responsible Restructuring: Creative and Profitable Alternatives to Layoffs, is pitched at managers with the aim of changing their “perceptions of employees from costs to be cut to assets to be developed”.  He advocates “preventative planning” as a way that organisations can better weather economic swings and roundabouts, and shows the benefits of viewing employees as “sources of innovation and renewal”, not “commodities”.

Cascio’s book includes data from his 18-year study of the performance of companies in Standard & Poor's 500-stock index, which shows that companies that “cut deepest, relative to industry peers, delivered smaller profits and weaker stock returns for as long as nine years after a recession”.

He uses examples from large and small companies to illustrate the “virtue” of stable employment and how “high-performance practices” such as training, sharing knowledge, inviting employees to contribute to “the design and implementation of work processes” or shifting from a vertical to a horizontal structure can positively influence financial performance indicators. That benefit also flows on in the economy, because people who have jobs spend more than those who don’t. And when people don’t spend, well, you get the idea.

Downsizing is a fact of working life as companies struggle to cut costs and adapt to a volatile business market. But is it always the best strategy? And do the cuts pay off? Before you make any decisions, think first about the missed opportunities, decline in employee motivation and stress levels – these too will affect your bottom line.

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