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At the first sign of a southbound economy some companies rush into panic mode. They slash the staff and hope for the best. Certainly, labor is the biggest expense for most businesses. That's why many managers believe there is no faster, more efficient way to improve the bottom line than by cutting staff.
Downsizing can often do more harm than good. Over the long run downsized companies are less profitable, according to a study by the University of Colorado. The study showed that over a three-year period, earnings quadrupled at firms that didn't lay off employees but only doubled at firms that downsized.
But when you add up some of the costs of layoffs, such as severance payments, continued healthcare costs for some former employees and higher unemployment charges, you may realize you are defeating your purpose. And that's only part of the picture. Since layoffs create uncertainty, they often prompt a drop in productivity, a decline in quality, a loss of talent as remaining staff members start looking for jobs elsewhere and increased costs to train remaining employees to take up the slack.
That's just the short term. Once the economy picks up steam, you'll have to spend money recruiting and training a new workforce. You might be understaffed and unable to keep up with new demand - another strain on profitability.
There are stories of companies during the Great Depression that had employees wash windows over and over again rather than lay them off. The end result: a fiercely loyal and trained staff ready to jump into action as the economy turned slowly up.
Take a clue from those companies and adopt a contrarian stance when possible. Here are eight strategies to help you adapt to changing economic circumstances with layoffs as a last result. In the end, your company will be more efficient and better prepared to tackle the competition when the economy re-engages.
Strategy #1: Get a playbook - Like a football team, you need a series of defensive plays as the game progresses quarter to quarter. Your company playbook - a combination of a business plan and strategic vision - helps you stay on track during hard times. And expect your employees to achieve the goals in the plan.
Strategy #2: Involve staff - Keep employees appraised of the challenges your company faces. Let them know layoffs are a last resort but you need their help to bring expenses into line. Set up cost-cutting teams and give them goals.
Strategy #3: Dump some perks - This can produce a host of cost cuts. Prime areas for trimming the fat are travel, executive seminars, rental cars, expense accounts and staff retreats.
Strategy #4: Opt for some rescheduling - Consider a four-day workweek, telecommuting, temporary furloughs, flextime and other means to cut payroll costs.
Strategy #5: Trim salaries - Reduce wages by, say, five percent across the board. Offer employees stock options that make up the difference and provide an incentive to work toward the company's success. Ask senior executives to forgo annual bonuses. Review your sales commission policy for possible cuts.
Strategy #6: Streamline - Restructure your business to enhance performance. Get rid of any department, plan or operation that isn't contributing to the company's success. Look for duplicated efforts, obsolete production lines and non-core businesses that can be sold.
Strategy #7: Selectively downsize - Take advantage of attrition and early retirement possibilities. If layoffs are inevitable, consolidate back-office operations first and retain employees who have face-to-face contact with customers. Look to lay off employees who add little value or disrupt others' performance.
Strategy #8: Beef up coaching - During a slowdown, your employees are likely to have more time for training than when your business is steaming full ahead. By adding training, you show employees that you're committed and willing to invest in their careers. And they'll be better prepared once the economy picks up steam.
Of course, there's no way to know how long the economy will remain weak. But with some creative juggling, you can retain employees and give them a stronger determination to make the company succeed.