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Restructuring always better than layoffs
The first option that comes to any management’s mind is to lay off employees, when companies get into the red zone or profits begin to fall and the bottom line seems to be sinking. Let us analyse why layoffs are the first choice of companies when it comes to cutting costs, the cause and consequences of choosing this option and if there are other viable alternatives.
First for the causes – profits may fall, business may not grow as expected, clients delay payments, competitors claim some market share and suppliers increase prices. The company finds itself in a financial crisis. It is answerable to investors and so the management first proposes to cut costs and eventually employees. Layoffs are the automatic response of managements in this situation. They do not realise that this move could backfire and there could be better options to raise the income.
James Lincoln of Lincoln Electric Co. (USA), one of the world’s largest manufacturers of arc-welding products who pioneered many revolutionary management practices in his time,opined that the cost of layoffs were far more than the salary cut savings made from them.
Companies fail to realise that employees are a long-term investment. Yes salaries and perks paid to employees are an expense on the budget. However, they should be seen as an investment on the skills.
Investing in employees should generate as much care, thinking and planning on the part of the management as they would when opening a factory or a new product line. A factory or a product line can be restarted after closure but when employees are laid off employee loyalty and faith in the company’s vision takes a beating and makes it hard to recover.
When the company announces a layoff, it speaks of job cuts and reduction in the number of employees but in reality it is the people who are affected.
Moreover, there is no denying the fact that the output of these employees determines the quality of products, services and the ability to survive market conditions and meet investor aspirations. Even if the downsizing is aimed at less productive departments and individuals, it has an effect on the employee morale at large.
This is because when they see their co-workers being asked to leave they fear that their turn will come next.
The atmosphere of uncertainty that a layoff creates causes others to panic and think of quitting. Often the first to jump the gun are the skilled and efficient employees because they can easily get a job elsewhere instead of staying on in a sinking ship. So with a reduction in the quantity of employers, quality is also affected.
Managements have to consider these factors before contemplating a layoff. Consequences like reduced employee morale and performance and decline in quality of the workforce is what they will get in the bargain.
Companies must think of better alternatives to layoffs in order to cut costs. One effective method is to undertake restructuring. This means closing down no-profit branches, outlets or factories, administrative changes and enhancing internal and external operations.
Undoubtedly, these changes show no immediate effect of improving the bottom line as downsizing employees will but in the long run they will be more cost effective.
Restructuring measures will have a cumulative positive influence on the bottom line. So, before handing out those pink slips to employees, the management must consider these points:
• Find out the real reasons for the crisis
• Remember that employees are an investment
• When closing down obsolete operations retain the lower rung staff
• Educate employees on the reasons for restructuring measures
• Offer employees options like pay cuts or reduced work weeks
Such solutions are a win-win option for companies because as Bill Coleman, at Salary.com says, "You don’t lose the people you worked so hard to recruit and train, you’re not doing what everybody else does, you look terrific to those large alumni communities, and in some ways it’s really a loyalty-builder".
Layoffs do provide that vital improvement to the bottom line but on the other hand the low morale, bad public image and loss of talented employees puts the management in a dilemma. Considering this, companies have to be resourceful enough to have better alternatives up their sleeve.
