Lately, layoffs have become common fodder among news outlets and social media. Company layoffs surged 98% in 2023, and so far in 2024, the slashing continues. Read any of these stories; they showcase flawed leadership—poorly delivered communication over video, cold emails, and a lack of empathy. Public opinion has certainly raised valid concerns about how best to deliver this unfortunate news to employees. However, the purpose of this article is not to dive into how but, perhaps more importantly, why and how to avoid them.
Why must so many companies lay off employees? As many accuse in public court, is it sinister corporate greed, or is something else in our boardrooms leading to these decisions? Ask most corporate executives, and they will tell you that the toughest part of their job is letting good people go. But if this is the case, why does it happen so frequently? Interestingly, many times, companies cut teams centered around innovation. As soon as there are signs of weakness in the financials, the employees at the greatest risk are those not directly tied to today’s sales and profit. Those focused on finding opportunities for future growth become expendable, creating a maddening circle of weakened demand in the future and, you guessed it, more layoffs.
“Those focused on finding opportunities for future growth become expendable.”
At one time, layoffs generated bad press for a company. They displayed weakness, community harm, and indicated toxic company cultures. Layoffs have been increasing steadily since the 1970s. In 1979, fewer than 5% of Fortune 100 companies announced layoffs, according to McMaster University sociology professor Art Budros, but in 1994, almost 45% did. A McKinsey survey of 2,000 U.S. companies found that from 2008 to 2011 (during the housing crisis recession and its aftermath), 65% resorted to layoffs. Amplify that with the latest COVID-19 pandemic and today, layoffs have become a default response to an uncertain future marked by rapid technological advances, tumultuous markets, and intense competition. Now, they seem to be an easy fix to appease Wall Street, and they are met with celebratory trumpets of “willing to do the hard but necessary thing.”
“Layoffs have become a default response.”
I couldn’t disagree more. Layoffs are EASY. Reduce the people to numbers on a spreadsheet, calculate the desired percentage cut, and then have your lieutenants enforce the decision. Are companies not a group of humans? Does this sound like the most humane way to move forward? What is truly difficult is building a team and resource strategy that makes layoffs the very last resort. I won’t argue that layoffs are never acceptable because surely there are times when they are the only way to survive. However, true survival should be the only legitimate reason, not the default answer.
So, what should a company do in the face of layoffs? What is perhaps the more difficult but right way to approach business struggles? Simply put, invest in people who want to be part of the company’s greater purpose. Is it easy? No, but let’s look at how this could help shape the company culture and future success.
Hire Slow
I once had a manager who would operate with one of the leanest teams in the company. It used to drive me mad. I felt stressed during the busy seasons and busy during the lulls. I would see other teams stacked with help across the board and wonder why we didn’t operate the same way. My perspective soon changed when the company was pushing down layoffs. When it came time for my manager to look at possible employee cuts, it was clear to the organization we were the leanest, and as a result, everyone was safe. Not one person was laid off, while other teams suffered a 20-30% headcount reduction.
Not only did this strategy save our jobs, but it also allowed my manager to attract the best talent. As you add headcount, it becomes harder to maintain a standard of excellence. Eventually, you make exceptions in the guise of someone being better than no one, but that attitude moves your team closer and closer to the mean. “Hire slow” is a mentality companies should use to avoid future layoffs and maintain higher performance standards.
Redistribute Talent
I hear you, sometimes companies change direction. Previously believed important projects or departments are deemed no longer crucial for success and thus become resources no longer needed. I met with someone in my industry who was working on customer experience innovation. The writing was on the wall that his team would soon all be laid off. Companies love to call this “getting back to the basics,” which is corporate speak for convincing the public that innovation shouldn’t be a priority now—cutting future growth to save the current underperforming business? It’s easy to understand why they are having tough times if they view innovation as a convenience and not a priority.
If these initiatives were once important, then it should be safe to assume you have talented people working hard to drive success for the company. Nobody wants to hear that their position is no longer important, but when a company lays them off, it becomes more than the position. It sends a clear message that the individuals are not important. How many remaining employees will raise their hands the next time you need volunteers for these “important” initiatives?
Now, imagine an environment where employees can expect to move into other roles within the organization. Recognize them for their efforts, thank them for staying loyal to the company, and position them to be successful elsewhere in the organization. That is a company culture that breeds collaboration and dedication.
Underperformance – Be Open and Honest
Some organizations use layoffs to remove underperformers. Can leadership be any more cowardly? Instead of constructively addressing performance concerns, they prefer to hide behind layoffs. An axe to a person’s career without warning is not leadership. Adding stress to the entire organization every 12 to 18 months with looming layoffs as an avoidance tactic is not leadership. Additionally, poor managers can easily abuse this practice by playing favorites, not necessarily considering what is in the best interest of the organization.
Organizations that avoid these developmental discussions clearly do not care in fair and equitable outcomes. If given constructive feedback, most employees will work hard to correct the behavior causing concern.
In CONCLUSION
While layoffs may seem like an expedient solution to immediate financial pressures, they often inflict long-term damage on a company’s culture and future growth potential. Leaders must shift their mindset from seeing layoffs as a default response to economic challenges to viewing their people as their most valuable asset. By investing in human capital and fostering a supportive and innovative environment, businesses can navigate tough times with integrity and emerge stronger on the other side.
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