Friday, February 6, 2009

Before Being Sent To The Gallows...

I recently came across this nice article at, which spoke of a few alternatives a company can take before opting to a lay off in order to cut costs.

In a gist:
  • Job cuts do not save money
McKinley, et al point out in "Organizational downsizing: Constraining, cloning, learning" that "while downsizing has been viewed primarily as a cost reduction strategy, there is considerable evidence that downsizing does not reduce expenses as much as desired, and that sometimes expenses may actually increase. More than thirty years ago, James Lincoln warned that the costs of layoffs generally outweigh the payroll savings to be gained from them."
  • Job cuts reduce performance
In the article Job Cuts Often Fail to Bolster Stocks reports an average performance gain by the companies that had announced job cuts at 0.4% while the performance for the S&P 500 during the comparable time period was a gain was 29.3%.

  • Thinking of employees as a long term capital investment
Many companies fail to realize that they have a tremendous long-term capital investment in their employees. While wages and benefits clearly are an expense item on the budget, they should be thought of more as payments on the capital of employees skill and dedication.

  • Focus more on re-structuring than cutting off people
Often, when job cuts are undertaken in order to pacify the investors, the announcements talk about the cuts as part of a "streamlining" or "restructuring", but they refer only to the people involved. There are other aspects of the company's business that need to be restructured as well. These often include things such as closing of obsolete plants or branches, administrative overhauls, selling of non-core operations, or improving internal processes.

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