In times when securing the bottom line requires it, a layoff is often the first strategy businesses consider. To them, at least, downsizing or cutting down the workforce seems like a more practical idea to reduce costs, especially when a company is standing on shaky ground. The social and economic impact on employees seem justifiable, but does a layoff really benefit a company in the long run?
Sad to say, there are a number of opinions suggesting the ineffectiveness of layoffs to modern companies. In an article published on the University of Pennsylvania - Wharton School website entitled How Layoffs Hurt Companies,It notes that ”several decades’ worth of research now shows layoffs to be a poor way to boost profits”. That said, layoffs don’t always strengthen the bottom line, but entail high costs. Let’s look at how firing people could affect any business.
1. Processing severance packages
Processing a layoff is tedious and costly. It entails a high amount of paperwork, which means the HR department will have its hands full during a massive downsizing. Workers compensation claims, insurance claims, and other benefits will have to be followed up, computed, and approved. HR could have used the time it takes to process these claims on fixing workforce issues such as productivity backlogs and employee satisfaction.
2. Turning over roles and responsibilities
During a downsizing, there should always be a plan to turn over certain roles and responsibilities to another employee. This may seem like a significant way to reduce the cost of paying salaries, but it actually impacts the productivity of existing employees who are now left with larger workloads to ensure business continuity.
3. Loss of valuable skills and networks
Employees who have been with a company for a long time are already equipped with valuable skills, knowledge, and contacts. By laying them off, a company risks losing assets with useful potential. Moreover, the company may have already invested in these employees in the form of training and other professional development programs, so it will take a long time and a lot of money to crosstrain the remaining employees.
The Wharton School article reveals that businesses will still lay off people regardless of how the economy fares. But seeing downsizing as the only strategy to use in light of a financial downturn doesn’t actually provide the expected benefits. If anything, businesses will still have to explore other cost-saving options.
The first thing should be the adoption of new tech and tools for the HR and Administrative departments. A payroll management software or professional services automation platform can help simplify routine tasks.This could help management allocate more time and resources on workforce enhancement measures.
Another option is to reduce working days or increase the number of allowable unpaid leaves on top of sick and vacation leaves. Employees are often willing to spend more time outside of work, even if they won’t get paid for it.
There are numerous other options to consider in improving revenues. Downsizing only proves to be less effective and detrimental at best if it's not done right, so make sure to craft an effective plan before you start giving out pink slips.