by Franco Gandolfi
Franco Gandolfi is Director, MBA/EMBA Programs and Associate Professor of Human Resources Management (HRM), School of Global Leadership & Entrepreneurship, Regent University.
While the pain of downsizing-related layoffs can’t be avoided entirely, it can be mitigated. Anticipating the duration and depth of an industry downturn, for example, can definitely help a manager prepare and deploy HR practices that will, in turn, help both employees and firms adjust to difficult times. This author discusses some responses that have been known to be effective.
Downsizing has been a pervasive managerial practice for the past three decades. Over the years, a firm’s standard response to finding itself in financial difficulty was to reduce its workforce. While there is ample evidence suggesting that downsizing activities rarely return the widely anticipated benefits, there is also a sobering understanding that downsized firms are forced to deal with the human, social, and societal aftereffects of downsizing, also known as secondary consequences. Research shows clearly that the human consequences of layoffs are costly and particularly devastating for individuals, their families, and entire communities. While workforce reductions cannot always be avoided, there are compelling reasons why downsizing-related layoffs must nonetheless be seen as a managerial tool of absolute last resort.
During an economic downturn a firm must carefully consider its options and assess the feasibility and applicability of cost-reduction alternatives before deciding on layoffs. While a considerable number of research articles that discuss alternatives to downsizing have been published, there is no conceptual understanding of downsizing-related layoffs as they relate to the actual cost-reduction stages of a firm. Indeed, it is critical for an organization to factor in the concept of cost-reduction and to recognize the specific cost-reduction stage that characterizes the firm’s current business position and environment. Thus, a firm needs to determine the expected duration of the business downturn. In order to do so successfully, the executive manager must know exactly where the firm is in its cost-cutting stage. A firm’s cost-reduction stage, by definition, refers to the timeframe the company requires to be able to reduce operational expenditures successfully.
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