Posted by: A.R. Cherian | November 5, 2009

Layoffs

I just finished reading a Harvard Business Review case study titled “The Layoff” by Bronwyn Fryer (HBR, March 2009). It was the case of a fictitious retailing company who had to consider various layoff scenarios in a down economy.

The case highlighted the fact that layoffs are never easy. This is true for both employees and managers. I liked the way the company in this case went about making the decision. The CEO told his executive team to form groups of 2 and come up with various scenarios and their pros and cons. This encouraged all points of views and their benefits and ramifications.  The CEO also heard from a lower level manager on the dangers it could bring to company morale and how the rumors of layoffs were affecting current employees, and took all this into consideration.

Some of the various scenarios discussed are highlighted below.

  • Seniority-based Layoff (first in, first out)
    • Pros: Save on higher salaries. Older workers just “counting the hours.” Chance to get rid of the “deadwood.”
    • Cons: Possible lawsuits from allegations of age-discrimination.
  • Performance-based Layoff (lowest 10% gets cut)
    • Pros: More productive workforce.
    • Cons: Harsh office politics, cut-throat competition, ranking system requires lot of work.
  • Last in, First Out Layoff
    • Pros: don’t have to pay a lot of severance. Easy to implement. People understand that you have to work up to seniority.
    • Cons: will lose top new talent that you worked hard to recruit. Will lose younger workforce.
  • Selling business units
    • Pros: avoid employee layoffs. Refocus on core strategy and keep only those units that are a good strategic fit.
    • Cons: may unintentionally get rid of a “diamond in the rough” that could become successful later on. May lose ability to grow top-line revenue.
  • Pay cuts across the board
    • Pros: more fair, since it applies to everyone. Everyone gets a sense of the business situation and when it affects their paycheck, they take notice.
    • Cons: You can only do it a couple of times at most before you get severe pushback. Good employees may leave for competitors who offer more pay.

In the end, making these decisions are hard. This case highlighted that. I think that it is also important to look at company morale as this case mentioned. Because, after all, you can’t get the best out of people if they are in constant fear of losing their jobs. Companies should be truthful as much as possible, and try not to surprise anyone with layoffs.

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