How smart are layoffs?
April 21, 2008 by Miki Saxon
Post from Leadership Turn Image credit: dannystock
No matter what you call it, eliminating people isn’t the smartest thing to do as statistics show and any employee will tell you—including the ones who aren’t directly affected.
According to Think Before You Fire in Business Week,
“For companies, layoffs are a quick, albeit unpleasant, way to trim costs, right? Not necessarily. A recent study of 200 enterprises found that even a modest downsizing can unleash an exodus of valuable employees. For instance, companies that laid off 0.5% of their staff experienced, on average, a turnover rate of 13%—compared with an average turnover rate of 10.4% at companies that didn’t do layoffs. (Academy of Management Journal)”
And that additional 2.6% of turnover are rarely the folks you’d choose to lose.
Way back in 2001, when thousands were being laid off, Frederick Reichheld, author of The Loyalty Factor (1996) and Loyalty Rules! (2001), showed in carefully researched studies that a 5% improvement in employee retention translates to a 25%-100% gain in earnings.
The two biggest advantages in cutting people are that layoffs take the least creative effort from management and Wall Street approves.
Keeping your people and juicing innovation and productivity when times are difficult takes work—lots of it.
What do you plan to do?
Your comments—priceless