Thursday, February 05, 2009

Layoffs and tech layoffs

There has been wide coverage in the press of layoffs across companies, including many technology companies.

I do not want to comment directly, but the writing of Jeffrey Pfeffer, one of my favorite authors on management, may be of interest. From one of his books:
There is no solid evidence that using layoffs rather than less draconian methods to cut costs increases performance, and there is plenty of evidence that involuntary reductions in force damage both displaced workers and "survivors".

A University of Colorado study ... showed no link between downsizing and subsequent return on assets. A Bain study ... found that ... firms that used layoffs primarily for cost cutting suffered a drop in stock price ... A Right Associates study ... reported that layoffs were followed by lower employee morale and trust in management.
This and some of Pfeffer's other work also talk about how to do layoffs effectively if they really must be done. To summarize, the layoffs should hit management harder than workers and should provide "people as much prediction, understanding, control, and compassion" as possible so you "reduce the number of people who feel afraid" and give people, "laid off or not", a "good idea of what steps they would need to take to control their destiny." ([1])

Pfeffer also refers to another book, Responsible Restructuring, for more "evidence on the ineffectiveness of most layoffs."

4 comments:

Jason Yip said...

A recent article on choosing between dividends and workers:

http://www.investorsdailyedge.com/article.aspx?id=1879

Jon said...

I can personally attest for the severe drop in morale & trust in management during layoffs. I worked in telecom in 00-02 & witnessed first hand the scramble in the aftermath of the WorldCom bankruptcy. While I was there, my employer's presence in the Raleigh, NC area went from 500 employees to 50 employees. For a period, layoffs were announced every other Thursday company-wide. This, coupled with their stock price dropping to less than 10% of its value a year prior led to a huge amount of resentment toward management, who seemed to just get shuffled around instead of axed.

Getting laid off was probably one of the better things that happened to me professionally, but I was young with no kids or mortgage. For those employees who had more obligations, their stock savings & job security seemed to vanish over the course of a couple months.

-Jon

Anonymous said...

I read a study that even a 1% RIF increases voluntary turnover by 31% after the recession/downturn is over. Basically, even if in the short run your employees don't leave, good people will find a way out eventually.

It's sad that so many companies are actually in a position where layoffs are basically something they must do. But at the same time let's not pretend they're going to escape from the layoffs with positive results (except survival, which is sometimes all they need).

Daniel Tunkelang said...

I'm not expert, but it strikes me that layoffs, more than almost anything else a company can do, challenge the trust employees place in management. If a company can clearly and forthrightly explain the reasons and process for its layoffs, I think the trust can not only survive but even grow. Unfortunately, I think few companies do this well--perhaps because their management listens to lawyers who tell them to say as little as possible. Consequently, employees are all afraid and unsure where they stand, and the best ones start looking for alternatives.