Why Are Layoffs So Harmful?

I read an interesting Newsweek article titled “Lay Off the Layoffs – Our over reliance on downsizing is killing workers, the economy – and even the bottom line”, by Dr. Jeffrey Pfeffer. (Thanks to Mark Graban that pointed me to it). The article shows that lay-offs do not save a company money: not in the long run, nor in the short-term. In fact it may have even more detrimental affects on a company than many realize. The article states with reference to empirical evidence that:

“…contrary to popular belief, companies that announce layoffs do not enjoy higher stock prices than peers—either immediately or over time.”

It is an interesting read for everybody for those who have been laid-off and even better for the people deciding to do the lay offs.

Manage the Bottom Line by Leading People

I think that the story behind the story is once again the topic of management and leadership. I strongly believe that in any situation it is always about people. That means that it is the people (managers) and their way of running a company that is the root-cause here. I have said before that you manage processes but you have to lead people.

When you have the “just manage people” mindset, then they become an assets on your spreadsheet and when hard times are upon you, cutting costs by reducing your capital makes sense – right? Well no – isn’t that obvious – Apparently not?

“In the face of management actions that signal that companies don’t value employees, almost every human-resource consulting firm reports high levels of employee disengagement and distrust of management.”

“Layoffs are more like bloodletting, weakening the entire organism. That’s because of the vicious cycle that typically unfolds. A company cuts people. Customer service, innovation, and productivity fall in the face of a smaller and demoralized workforce. The company loses more ground, does more layoffs, and the cycle continues.”

This reminds me of one of Dr. Demmings most commonly used quotes:

“Running a company on visible figures alone is one of the seven deadly diseases of management.”

In this case it is financial metrics. It seems that in a recession most management executives are thinking of short-term financial metrics and not the long-term health of their company? I am sure that these managers do not intend to do this and that they probably believe that they are doing the right thing. However it is this focus on managing rather than leading that is the problem.

Managing the company’s business (The process) is more important than leading the people (organization). The end of the quarter’s bottom line is more important than long-term viability. Although this seem to be common practice, there is ample proof of companies that thrive by doing differently. Yes, by simply motivating and empowering their people. That is what makes them great companies, and also immensely profitable.

We are driven by this need to satisfy investors, whom I may add are also typically about short-term gain. It seems that everything revolves around the need to make money now.  This could be called the myopic salesman approach, which is to pick up the closest shiniest pennies and not to look ahead and possibly see a pot of gold on the horizon. Even if there is not a pot of gold on the horizon, by looking at the long-term horizon of an organization you will be signally to important stakeholders that you cared for something of lasting value. And dedicated people appreciate that!

So how are you doing in looking at your bottom line in context of your most valuable assets? Have you been one of those downsized in a short-term bloodbath at the altar of the quarterly report gods? What would it look like to forgo a downsizing and enact something different that kept the long-term horizon in place? I’d love to hear your thoughts!

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Gilad Langer is Consulting manager at NNE Pharmaplan
He can be reached at [email protected]

Image Sources: jeffjonesillustration.com, media.cnbc.com, images.cxotoday.com

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