Use Layoffs Sparingly and Strategically

CU360
June 17, 2009 | COMMENTS

Traditional layoff tactics might cut costs, but they often cause damage on the inside and the outside that can be difficult to repair, notes strategy+business magazine. A more thoughtful and strategic approach to layoffs softens the short-term impact while leaving an employer poised for growth.

Layoffs are difficult and gut-wrenching and often fail to deliver expected cost savings or improved performance. Slashing jobs can leave a company vulnerable to competitors and constrain its ability to be an industry leader. That strategy will prove particularly flawed during this recession, when entire industries are shifting and dominant players are changing.

To implement business changes, leaders will need to have the right talent in the right roles. Workforce reductions must not only deliver sustainable cost savings right now, they must also leave skilled and motivated people in critical positions to maximize the enterprise's present and future success.

Achieving these objectives requires a set of processes that strategy+business calls "talent fitness"—systematically matching employees' capabilities to the strategic needs of the enterprise. The following five key steps can help increase confidence in an employer's leadership—and help ensure that it has the right talent in place as it emerges from the recession.

1. Make smart cuts quickly. Make selective cuts that can be easily identified. Set criteria for "smart cuts," and then ask leaders throughout the organization to identify positions that meet these criteria. These may include positions in areas where demand or growth has evaporated in the downturn and will not come back.

Before implementing any of these changes, estimate the potential cost savings and benefits of each alternative, including indirect costs such as damage to customer experience, reduced workforce productivity, and increased turnover.

2. Assess capability gaps. Whether or not you're explicitly revising your strategy, identify those businesses and product lines that are potentially most profitable for the long term. Then identify the key capabilities (knowledge, skills, and behaviors) that people will need to keep these businesses going. Finally, assess the capability gap that exists between the talent needed and the talent available. Focus on finding or developing needed skills and knowledge sets.

Assess these skills in light of any process and technology improvements that you're considering. Periodically revisit workforce capability assessments, and make sure recruiting and talent development stay aligned with your strategy.

3. Assess people. Identify high performers who are a good fit with the company's future and core capabilities. Place a higher priority on developing and deploying them. Doing this requires a company-wide selection process, starting with assessments.

Look at the workforce overall, and translate workforce needs into staffing criteria. One approach is to assemble a team to rapidly develop explicit criteria based on skills and relevance to the company's strategy. A relatively simple set of criteria can be pulled together in a matter of weeks. Managers can then review employees based on an assessment of their "fit" relative to the revised business strategy.

4. Develop an effective exit process. Even with a strategy-based approach in place, there's still a danger of laying off the wrong people for the wrong reasons. Managers making individual layoff decisions need guidance. An effective exit process requires an understanding of future requirements and the best ways to separate employees with the least damage to the organization. Managers must be trained and held accountable for decisions about who goes and who stays.

5. Ensure engagement during the change. The greatest damage to employee trust and engagement occurs during times of layoffs. Some companies never manage to fully repair it. By taking certain measures now, leadership can stem cynicism, build greater confidence in the future, and minimize the impact on productivity. Layoff survivors will need to be re-energized and re-engaged.

During layoffs, generously share information—both good and bad news—as soon as it's available. Schedule frequent updates on the state of the company and progress on the new strategy. Online surveys are a powerful tool for checking the pulse of the workforce on trust and engagement issues and surfacing concerns.

The pain of layoffs is probably unavoidable. But if leadership addresses long-standing talent challenges and solidifies its strategic direction, people will know the company took the most viable path for the long run. There's an added incentive to making change during periods of economic turmoil—people are much more willing to acknowledge and accept that change is necessary. Looking back, people will recognize that the suffering was necessary, because the company emerged stronger.