Strategic Framing

Each day brings new layoff announcements.  In the past week, we’ve learned that the layoffs in the banking and financial services sector are not limited to North America and Europe as banks pare their staff in Asia.   In recent days, media companies (AP, New York Times), law firms, manufacturers (Boeing), bottlers (Pepsi), and tech companies (HP, Sun) have announced layoffs.

So are all layoffs bad news from an organizational performance perspective?

The short answer is yes.  The long answer is some types of layoffs are much more difficult to overcome than others.  In addition, every layoff action, no matter how small, has the potential to do long-term damage to a company if not managed properly.

Start by assuming layoffs are a bad sign. Layoffs mean management made bad decisions in the past, demand for the company’s products and services are declining, revenues will be dropping, and the company is going to lose some key personnel in the near future. Now cut management some slack if layoffs are industry-wide, seasonal, or clearly due to a unique and unforeseeable event. 

Some have argued that current events were foreseeable but I think we can all agree the extent of the economic damage was not anticipated. 

As for the industry-wide excuse, the need for layoffs may be unavoidable (as is the case in most financial service firms right now) but the way in which the layoffs are managed is entirely at the discretion of management.  Seven years ago, the telecom equipment industry was devastated by a sudden drop in demand.  Each company suffered but for some companies the suffering was made worse due to self-inflicted wounds from poor management of layoffs.  Layoffs dragged on, strong employees were recruited away, employee morale plummeted.   One company, Cisco, seemed to manage the process better than its competitors.  Cisco announced its layoffs in one big action and committed to ensuring the company was strategic about how the layoffs were implemented and which parts of the organization were effected.  By making one large layoff announcement rather than slowly bleeding employees on a quarterly basis, Cisco reduced the length of the internal post-layoff recovery period.  This is one example of turning an industry-wide slump into a competitive advantage.

The Bottom Line: Layoffs are an admission that the company made poor decisions in the past. They are not a sign of strong management. They can get a company back on track but they will not make a company great. Companies do not cut costs to become industry leaders, they innovate.  However, skillful managing of the layoff process can enable a company to recover from an industry slump before its competitors.