Layoffs are not a long-term answer for companies when they face tough times. Nine-eleven and the Great Recession tested companies with no-layoff policies. Southwest Airlines, Marriott, FedEx, Honeywell, Toyota to name a few passed the test. I should add that I am talking about permanent employees in non-seasonal businesses. Here is a comment from a Southwest Airlines employee:
“Never in my 13 years [at the company] I felt like my job was in jeopardy because of the economy,” said Jill Kronman, a flight attendant for Southwest Airlines.
Layoffs Versus Furloughs
Do furloughs give better results than layoffs? The May-June 2018 Harvard Business Review article, Layoffs that do not ruin your company, gives an idea. It shows that layoffs destroy long-term value. They not only destroy value, but destroy lives. Honeywell’s experience in the Great Recession supports this view. Here are comments from their CEO:
When my leadership team started looking at options, we kept coming back to the idea of furlough: workers take unpaid leave but remain employed. Conventional wisdom is that because licenses they spread pain throughout the workforce, harm morale, loyalty and retention for all, so it would be better to lay off a smaller number, focusing on underperforming workers… The process did not go smoothly [but] Overall, our decision to use furloughs instead of layoffs was a success.
Leaves show care for employees
Layoffs exhaust the talents of companies. And it takes time and money to rebuild. When a leader says his company is in a “financial crisis,” what does that mean? It’s a euphemism for problems with operations, demand, the economy, etc., because finances are never the problem. So if the CEO looks to the financials for the solution instead of what’s behind the numbers, the CEO will make a bad decision in the long run that will hurt the company. One of the dumbest responses is to lay off a percentage of the staff in each department. It’s a simplistic, misguided and lazy way to destroy long-term value. Some departments may need more people for sixteen post-recession opportunities!
Faced with falling revenues, depleted cash, and rising costs, what’s a business to do? During the Great Recession, Bob Chapman, CEO of Barry-Wehmiller, opted for furloughs, not layoffs. in his book Everyone Matters, The Extraordinary Power of Caring for Your People as a Family, Chapman and Raj Sisodia state: In a family, when times get tough, you don’t fire anyone but look for solutions to resolve the crisis. After the licenses, Chapman noted that the licenses shared the sacrifice but, in the end, it didn’t seem like much of a sacrifice. In fact, the three years following the licenses were record years. To recognize what their team members gave up, the company reinstated the 401K match and then “refunded” the lost funds to them if the company hadn’t suspended the match.
Licensing helps retain talent, builds a caring culture, boosts morale, and is more profitable in the long run. But this approach needs a long-term vision. In addition, the company must value and invest in its workers. When a company keeps its employees and treats them well, it will benefit. That’s one of the reasons family businesses do better than non-family businesses. A 2018 study alluded to the long-term vision that family businesses adopt in their decision-making. For example, these companies reinvest a higher percentage of funds instead of buying back shares like short-term focused companies.
Manage Cost Units, Not Costs
When a company believes that its costs are too high, the first approach should be to look at its mission and strategy and compare them to its activities. Are we doing what we should do? Companies must understand where they are, what they are doing, before deciding to adjust their activities. Costs are never problems but symptoms. Show the scoreboard!
Managers and leaders manage the wrong things. They try to manage costs; but no one can not manage the costs. I repeat: the costs represent the score as in a hockey or football game. we must isolate cost drivers and manage them, such as the energy contract and energy consumption, not the total energy costs. “Cost cutting” and “people cutting” are reckless and wasteful exercises, as the Harvard article shows.
People work on activities. Removing people does not remove their jobs. That removes skills, talents, and experience, but the projects and other things needed to accomplish the mission remain. When the company faces challenges, it must evaluate the projects and activities necessary for the mission and define its resource needs in people and money. This reassessment should lead to a better understanding of whether the company has strayed from its mission and how it should get back. To deal with overstaffing, the company can combine furloughs, freeze hiring, retrain, and refocus.
Before a leader decides to lay off their staff, they should ask themselves: Why do I have too many people? Often the answer lies in poor (or nonexistent) formal decision-making process, short-term focus, poor growth, overinvestment, mission drift, or lack of focus. Leaders must look at the long term and know the economic cycles between peaks and troughs. In good times, they must match growth with long-term resource capacity, both human and financial. That’s Jim Collins’ 20-mile walk. In addition, the leader must ask himself if the company has the right people in the right places. Are they cooperating and working on the mission? This analysis will identify the problem that layoffs will not solve.
Will companies continue with their no-layoff policy during this pandemic? Those are the million dollar questions. I hope that many companies will adhere to layoffs because that is the best approach for the long-term viability of the company. And this is how to manage in the long term to create value for the company!
