Downsizing Should Have Three Stages—No Layoffs, Flexible Downsizing, THEN Layoffs—Not, Two

December job cuts were far worse than expected.  A recent headline in the Wall Street Journal read, "No-Layoff Policies Crumble," as a number of companies with historical "no layoff" policies have been forced by the economic downturn to do the unthinkable.  Unfortunately, this all-or-nothing approach ignores an important, interim possibility—flexible downsizing. 

As I’ve written many times (here, here, and here), using strategic work+life flexibility—reduced schedules, sabbaticals, job sharing, project-based consulting—can help organizations avoid at least some layoffs.   But, nevertheless, according to the WSJ article:

  • After 51-years of never laying anyone off, even after 9/11, Enterprise Rent-A-Car is laying off 1,000 or its 75,000 employees.
  • Gentex Corporation, a company that "didn’t even have a layoff policy," dismissed 15% of its workforce or 370 employees.
  • Life Time Fitness laid off 100 of its 15,000 employees. 

In fairness, the WSJ article discussed how the companies tried to avoid layoffs by "freezing salaries," "drumming up work for idle employees," "filling openings with temporary workers," and "moving employees to busy segments from those with little work." But nowhere did the article mention creative uses of strategic flexibility that would keep valued employees while allowing companies to reduce labor costs. 

Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School was quoted as saying, "Companies really respond to these things based on what they think they ought to be doing.  They watch what their competitors do and listen to what the investment community tells them." 

Okay, so clearly companies are not seeing their peers use flexible downsizing as an interim step before layoffs.  So maybe they think this is the only option.  And the investment community is stuck in the all or nothing, short-term answer to managing labor costs.  But what are the hidden costs of this inflexible, zero sum approach?

  1. As economist, Albert Wojnilower, noted in a recent New York Times article, "The job insecurity is very serious; that is the worst aspect of all of this.  But most upturns in the economy have begun with upturns in consumption, when people who still have jobs stop worrying about losing them."  If employees thought they’d have a reduced schedule, have to share their job, or become a project-based consultant before being laid off, would it make people less afraid and would the recovery begin sooner? 
  2. Many of the economists in the same New York Times article felt there is a chance the economy could turn around within the next year.  Then what?  Will companies be ready to hit the ground running, or will they be scrambling to find and train new people?  Wouldn’t it be smarter to increase the hours of a worker on a reduced schedule, or hire back someone full-time who had been consulting? 

With Alcoa announcing it's laying off 13% of its workforce or 13,500 people, let's recognize that maybe the traditional "all or nothing" approach to managing labor costs is not the only answer.  There's a third powerful step in the middle, using strategic work+life flexibility to reduce costs while staying connected to valuable employees.  Flexible downsizing may also have economic benefits beyond direct labor costs savings for the employer, such as limiting consumer fear and positioning organizations to have trained talent in place when the recovery begins.  But first organizations need to understand, downsizing is a three-stage process, not two. 

What do you think?  With unemployment numbers approaching historic levels, can we afford an all or nothing approach to downsizing?  

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2 Comments

  • Nitin Pai

    Cali- I agree with your sentiments and proposed solution. I think the challenge that most large companies face is that their management teams, their legal departments, and their HR departments are wedded to traditional methods of managing in a downturn. They revert to the well-worn philosophies of layoffs in down times, with rapid re-hiring in the boom years. Unfortunately, they choose to think creatively or to take the trouble to quantify the seemingly intangible costs of this philosophy.

  • Ilya Bodner

    Companies are trying to prevent closing down. It is evident that everyone is in a panic. For small business owners it is the perfect time to strike. Expansion is on everyones minds - be the first one to catch the bigger share of the market. Expansion needs business financing and to get that capital take effort. The internet is a great start for research. I think that all small business owners should be reminded that there are still options! Try searching for business financing or business credit online.

    Sincerely,

    Ilya Bodner
    Small Business Owner
    Initial Underwriting Group