Selective Job Cuts Often Benefits Firm More Than Broad Layoffs Over Long Term


It is difficult to pick up a newspaper or listen to a business news broadcast without being greeted with the announcement of another massive corporate layoff or cutback. The economy catches a chill and, as a result, the corporate world catches a profits "cold." Before long the pink slips begin to fly. We have come to accept this as the inevitable employment cycle. Is it any wonder that employees feel so little loyalty toward their employers?

On the other hand, corporations seem to have no alternatives. With the squeeze on profits, and stockholders and analysts anxiously watching, company leaders feel that they must act quickly or bear the wrath of Wall Street. They understand that their response may in fact be a little shortsighted, but investors have short fuses when it comes to waiting patiently for earnings statements to turn around. However, without viable alternatives, corporate executives seem doomed to repeat the same pattern. Is there any alternative?

The answer is both "yes" and "no." In the short term, some cuts may be essential, but it is far better to do so by the use of a scalpel, rather than an ax. Why? Because your organization's long-term future may well be on the line, and its future profitability may depend on the way you respond to the present economic downturn.

Positive Benefits that Accrue from Not Cutting Staff

There are numerous direct benefits to either not cutting staff or, if cuts must be made, to minimizing them. And if cuts are necessary, highly selective surgical cuts should be utilized wherever possible to remove only under-performing or marginal employees rather than implementing massive across-the-board cuts. The benefits to following this course of action, to name just a few, include:

customer and vendor relationship continuity;
recovery of sunk recruiting, experience and training costs;
higher morale and efficiency;
personnel knowledge base retention;
containment of sensitive information, such as customer data, proprietary processes and methods;
marketplace responsiveness;
continuing organizational development; and
the potential for innovation

However, in the long term, I believe the greatest advantage in avoiding across-the-board job terminations is in fostering a strong, pervasive and healthy corporate culture that is unique, very visible and highly regarded throughout the organization as well as by its customer and supplier base. In the last three decades, many corporations have demonstrated a singular disregard for any development of their corporate culture. Fixation with leanness and repeated cycles of mass hiring and firing were justified as the means to achieving high profits and maximizing stockholder return on investment. However, in his books Built to Last and Good to Great, Jim Collins points out that even the most touted of these corporations have failed to achieve the returns of other, less mercenary organizations that have chosen to pursue a longer-term vision with a people-centered path to achieving greatness.

Developing a pervasive and positive corporate culture encompasses far more than merely vocalizing a series of platitudes. It demands a continuing commitment to pursuing greatness as an organization, even at the cost of more immediate near-term success. Leader's who view the establishment, development and nurturing of a strong corporate culture understand that it creates value in and of itself. Is this a value that appears in the asset section of the balance sheet? No, not in the short term. But over time, the stability, loyalty, commitment, enthusiasm and pride that a strong corporate culture engenders does very definitely impact the real financial value of the organization.

Today, employees at every level of the corporate organization want more than merely to earn a living. They have higher expectations! Job satisfaction encompasses much more than basic pay, benefits and a safe working environment. Employees expect, if not demand, a far deeper sense of satisfaction from their labors, and so should their employers. After all, it does not require extensive surveys or studies to recognize that happy, satisfied employees are more productive to the organization than those who grudgingly or fatalistically work only for a paycheck.

A positive, motivating and exciting corporate culture attracts excellent people like a magnet. Instilling a sense of accomplishing something truly worthwhile, even when performing tasks of a routine nature, satisfies an inner need to make a valuable contribution as an individual. We are by nature social. A common, unifying set of goals and values creates a team that can be far more effective than the sum of the individuals working independently. During WWII, British Prime Minister Winston Churchill provided us with a graphic example of how time and again, the outnumbered, out resourced and dispirited can be rallied into an unconquerable force. Whether on the beaches of Dunkirk, during the London Blitz or in the Battle of Britain, the British prevailed against enormous odds under Churchill's bold leadership and undaunted encouragement.

There are numerous aspects to building and fostering an effective corporate vision, but one of the preeminent essentials is the continuity of staff. Camaraderie, trust, loyalty, the development of personal relationships, mentoring, and the less formal, repeated verbal communication of organizational traditions, are intensely important. All of these are disrupted when a mass exodus occurs. Corporate cultures are relationship dependent. Positive relationships are the links between individuals which facilitate the transfer and reinforcement of a dynamic culture, not the employee manual or a written statement of vision, mission or purpose. The latter may form the foundation upon which the corporate culture is built, but it is not the culture itself.

When executive leaders must weigh layoff and termination decisions, it is crucial that the leaders recognize not only the direct costs of maintaining employees versus cutbacks, but also the organizational costs, the costs to stability and the corporate culture. How will this alter who we are, what we represent and the way we function as a team and organization? These are all questions with very real long term financial implications to the organization.

A healthy, vibrant corporate culture powerfully serves two primary ends. First, to attract the required talent for the organization's continued development from "Good" to "GREAT." Second, to foster an environment where employees are confident and motivated to use each day to the fullest in building a better tomorrow. To do so requires continuity of staff. I am a vocal advocate of asymmetric growth, but not of discontinuous vision, values and relationships.

What Else Can Organizations Do to Stem Falling Profits?

If you shouldn't be chopping, but sales and profits are sagging, what should you do? INNOVATE! It is amazing what cost reductions can be quickly experienced and what market share gains are possible when we become innovators and teach each person within our organizations to do likewise. To grow in spite of the economy we need to create a corporate culture of continuous innovation. What's more, by doing so, we position ourselves to jump ahead of the pack as soon as the economy does begin to turn the corner.

Any organization can cut its way to profitability in the short term, but we can never cut our way to long-term GROWTH!

Copyright 2005 by John Di Frances.

John Di Frances is an internationally recognized organizationallegacy expert and motivationalspeaker. http://www.difrances.com