Special Edition!
Reprinted with permission by The Philadelphia Inquirer
Little payoff in layoffs
Smart companies look at hiring
when economy hits a slump.
March 26, 2001
By Terry Wall
Think layoffs are the answer in a slumping economy? Think again. The key to surviving the economic slump is hiring, not firing.
Conventional wisdom says that when an economic slump shrinks profits and stunts productivity, you should concentrate on laying off employees. Intuitively it makes sense.
But companies that think progressively focus on hiring, because they realize that the economic slump is simply part of a cycle. Business is down, but eventually it will be back up, and they will have to hire.
What they do today is always tied closely to what they will do in the future when business picks up.
To increase overall profitability, you must look at the layoff and hiring together. Otherwise, you miss the big picture, because taken together they can be very costly.
Many people underestimate how costly the layoff itself can be. For instance, if you think productivity is down now, watch how much further it plummets after you announce the layoff. You won't get anything out of the people being laid off.
And that announcement even reduces the productivity of those who are staying, because those survivors are busy interacting with the "goners," listening, providing support, worrying if they themselves are in the next round.
Also, poor morale will undercut any hopes that the surviving workers readily will do both their own work and that of those laid off.
The costs don't stop there. Look at severance pay. You're laying people off because you don't want to pay them for standing around doing nothing. But severance pay is, in effect, paying them to do nothing.
Then there's the continued paying for health benefits. Time spent by human-resources staff helping those laid off to find other jobs. It all adds up.
Because layoffs are so expensive, and because the costs for hiring new people when the economy picks up are just astronomical, progressive companies always "fire with hiring in mind." They implement the layoff so that when they get back to hiring, they can rehire some of the departed workers.
That's always cheaper because rehires already know the business, its culture, its processes. Rehiring them can reduce the lengthy and costly process of starting from scratch with people totally new to the company.
Another strategy creates a process for keeping in touch with those former employees.
Not only do enlightened companies keep them informed about what is going on, these companies also want to know what former employees are doing so the companies know what is necessary to entice them back.
They also make sure they know how to reach the former employees quickly once the rehiring starts.
The better companies know that how the layoff is conducted will also influence hiring. If you lay off people in a way that lacks compassion, dignity and respect, you can forget about getting those people back.
True, they may not want to come back anyway for fear of being laid off again, but your chances of luring them back are much better if you handled the layoff process humanely.
Even if you can't get those people back, or don't want them back, you don't want them poisoning others with tales of how badly you treated them during the layoff.
After the layoff, but before the rehiring process begins, good companies use the downtime wisely, focusing on the hiring frenzy that inevitably will occur.
They ask themselves, their employees, their suppliers, critical questions:
- What specific actions must we take to be ready?
- How will the economic and business landscape have changed when the upturn arrives?
- What can we do between now and then to exploit new opportunities?
- What ideas must we rethink in our business plan to be as effective as possible? What skills will we need then?
- Will we have to look outside to find people with these skills, or can we use training to develop them in our current employees?
Our economy has just gone through an unprecedented period of incredible growth. Just as the boom couldn't last forever, the current slump will some day end. And when it does and the economy revs up again, many companies will be too busy to do the hiring right.
The smart companies, though, will have entered the slump forgetting gloom and doom while planning for the next boom and zoom. And that means focusing on hiring, not firing.