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Go Beyond Layoffs to Cut Costs

Layoffs are often the go-to move when you need to cut costs — and this is the season for cost cutting as annual budgets are finalized. However, laying off talent is expensive in the long run.

When you lay off talent, you lose people who are familiar with your company's culture and have been an integral part of past success. If you lay off your talent, you will face myriad challenges when things turn around and you need to ramp up. For example, finding and hiring talent is expensive. Getting a new employee up to speed can be costly and can disrupt your timeline.

Therefore, before you cut bodies, consider the following alternative strategies.

Reduce complexities
How complex is your company? Your products and services? Be honest. If the answer is “Too complex,” reduce complexities internally, so that you can drive growth externally.

Streamline your offerings
Take a look at your products and services. Are there any that are unpopular and/or unprofitable? Are any no longer on your roadmap? Eliminate them. This will let you reduce inventory and the costs associating with maintaining a product line or providing the service. Again, re-allocate resources to drive growth.

Manage for today without mortgaging tomorrow
If you focus only on quarter-to-quarter results, you'll run out of growth before you know it. Balance is the key to sustainability.

When you need to reduce costs, reducing headcount may be the go-to option. However, taking a longer view and considering other options may offer lower costs and fewer problems in the long run.

38 comments on “Go Beyond Layoffs to Cut Costs

  1. t.alex
    January 4, 2014

    HP recently announces a layoff plans of 5000 employees. Sometimes when the management do not know how to make use of talents, they them go.

  2. _hm
    January 4, 2014

    In recent time, layoff is effectively used to restructure salary and reduce it. If person is overpaid and not so effective, he/she may get laidoff. And soon new person with much lower salary will be hired.

    They should also do this at all level, incuding management and higher management level.

     

  3. apek
    January 4, 2014

    Worker productivity is the main source of supply while wages are the main source of demand. If productivity rises faster than wages, then supply rises faster than demand. This results in overproduction and forces the manufacturer to fire workers. Producers are the suppliers of goods, and consumers generate the demand for these goods. Consumer demand, being dependent on wages, is sustainable only if the consumers as workers earn higher salaries. If the wages of consumers do not catch up with increased supply of goods, the supplier of goods is unable to sell all that he/she has manufactured and has to layoff employees.http://www.truth-out.org/news/item/14887-a-failure-analysis-of-the-us-economy#%2EUTNNls7bmKk%2Efacebook

     

  4. Wale Bakare
    January 5, 2014

    I can hardly blame management for reduction in number of staff. Reason is because employees' salaries often take chunk of company budgets.

  5. apek
    January 5, 2014

    Giving higher salaries to employees increases the consumer purchasing power and it leads to hihger Macro-economic growth. So, Your logic is  flawed that keeping salaries lower is good for comapny's budget.

  6. Wale Bakare
    January 5, 2014

    >>Your logic is  flawed that keeping salaries lower is good for comapny's budget<<

    My comment neither about high nor low salary of employees rather about expenditure often incur by companies.

  7. Daniel
    January 5, 2014

    “In recent time, layoff is effectively used to restructure salary and reduce it. If person is overpaid and not so effective, he/she may get laidoff. And soon new person with much lower salary will be hired. They should also do this at all level, incuding management and higher management level.”

    HM, its not an employee friendly decisions. If they don't need any of their employees, they can terminate them with proper notice or can restructure the salary.

  8. ahdand
    January 6, 2014

    @Jacob: Yes true I get your point but I feel that the company should take more responsibility when hiring people. IF they select and if the user has got confirmed then they cannot say that the user is over paid and not effective. It's a baseless argument in my book. 

  9. Ariella
    January 6, 2014

    I think that Frank means that it is sometimes a knee-jerk reaction to less cash to let employees go, though in the long term that may not prove wise. In fact, some companies that let people go in downturns incur additonal hiring costs when they find they need the people to keep their businesses going afterwards.

  10. Daniel
    January 6, 2014

    “Yes true I get your point but I feel that the company should take more responsibility when hiring people. IF they select and if the user has got confirmed then they cannot say that the user is over paid and not effective. It's a baseless argument in my book. “

    Nimantha, in majority of companies salary packages are fixing through negotiations between the HR and employees; based on role and responsibility. So later they can't say that they are over paying

  11. Daniel
    January 6, 2014

    “Giving higher salaries to employees increases the consumer purchasing power and it leads to hihger Macro-economic growth. So, Your logic is  flawed that keeping salaries lower is good for comapny's budget.”

    Apek, such n=macro-economic growths are happening outside the country and will helpful for total economic growth of country. When purchasing power increases, need for high salary also there to maintain the living standards. So it's a close loop and one is depend for the other

  12. SP
    January 7, 2014

    Layoffs can be just a management decision for the company to keep up the cost of running but for an employee it is quite emotional. Many employees finds it difficult to accept this and takes time to get back in their career. While in US its quite common, in India due to cultural background its not that easy.

    Many times a hard working, honest and talented employee gets afftected by these layoffs and company is at the loss. Some one who has been on bench for quite sometimes, it doesnt affect much for the employee and the company because both could have seen that coming.

    I would say if company wants to cut the cost, layoffs must be the last option because it not only affects the employee as a person but his entire family. Cost cutting can be done on other infrastructure and operational cases. Temporary reduction in salary can be another option that can be tried in difficult times.

  13. Daniel
    January 7, 2014

    “Layoffs can be just a management decision for the company to keep up the cost of running but for an employee it is quite emotional. Many employees finds it difficult to accept this and takes time to get back in their career. While in US its quite common, in India due to cultural background its not that easy.”

    SP, lay out can happen due to over production or less business. Both cases can be handling well without much hurting the workers sentiments. Here somebody had pointed that it had done to reduce the employee wages in a forceful manner.

  14. Daniel
    January 7, 2014

    Apek, thanks for the link.  

  15. ahdand
    January 7, 2014

    @Jacob: Yes exactly, it's the management who selects and decides on the salary. So if they are trying to find excuses against the employee, then they are putting themselves into trouble.  

  16. SP
    January 8, 2014

    @nimantha..so true.. if there is a over production or less business, its the management who must take the blame and take the pay cut or take some off time..but laying off the engineers or workforce to cut costs is quite an extreme..

  17. t.alex
    January 8, 2014

    Yep, to management, employees are simply cost(ly) numbers.

  18. Eldredge
    January 8, 2014

    @SP – I think what you stated is particularly true in larger companies. Sometimes, small companies can be more imaginative in finding solutions that fit the needs of their employees, while larger companies tend to be more concerned about polices and results across broad, sometimes disjointed segments.

     

  19. Daniel
    January 8, 2014

    “Yes exactly, it's the management who selects and decides on the salary. So if they are trying to find excuses against the employee, then they are putting themselves into trouble.  “

    NimanthaD, all such sorts of things can happen with small startup companies. Reputed and LLC/Ltd companies won't go such extremes. They know well how to extract more from employees; by rearranging the profiles across projects.

  20. Wale Bakare
    January 9, 2014

    >>layoffs must be the last option because it not only affects the employee as a person but his entire family<<

    That differentiates working class people in developed nations to that of developing ones. In developing areas like Asia and Africa, where an employee working in a big/multi-national company shoulders responsibilies of his/her immediate and extended families. Sacking employees there, is as devastating as a collapsed pillar holding a mansion with no sign or hope of re-erecting.

  21. Hailey Lynne McKeefry
    January 17, 2014

    @T.alex,  here's some more info on the HP layoffs: http://www.theverge.com/2013/12/30/5258812/hp-tacks-another-5000-jobs-on-to-layoff-plans

     

    The article said: CEO Meg Whitman put those plans in motion last year in an effort to trim costs, and get the company back on track as a mover and shaker of technology products and services.

     

    I wonder if there was another or a better way for HP…

  22. Hailey Lynne McKeefry
    January 17, 2014

    _HM, i think you are right: high cost employees are often on teh chopping block. Unfortuneatly, they take with them a lot of experience and historical informaiton about what has happened at the company.

  23. Hailey Lynne McKeefry
    January 17, 2014

    @wale, salaries are a big part of the corporate budget ass you said. According to an article in teh Houston Chronicle: Depending on the sector of your business, you may spend between 40 to 80 percent of gross revenues on employee salaries and benefits combined. Salaries alone can account for 18 to 52 percent of your operating budget, according to the Society for Human Resource Management.

  24. Hailey Lynne McKeefry
    January 17, 2014

    @Ariella, i think you have it exactly right. Knee jerk layoffs can be costly particuarly if the downturn is a short one. I suspect there may also be a reluctance to look creatively at retaining good people.

  25. t.alex
    January 23, 2014

    HP still relies on a lot of manufacturing work. So perhaps the plan is layoff and move to cheaper places like other companies. Making use of talented people has to be shelved off.

  26. Eldredge
    January 27, 2014

    @Hailey – I have seen more than one situation where a company regretted a drastic talent loss from a major layoff. At the same time, I've also seen the situation where a company hires back a needed skill in temporary mode, sometimes taking advantage of the employee in the process.

  27. Hailey Lynne McKeefry
    January 29, 2014

    @Eldredge, at least here in California, the state looks carefully at independant contractors to make sure they aren't just people working “independantly” for a single organization. One time, I was hired by a large enterprise technology company and the government sent me reams of forms to fill out asking all sors of questions: do you have other clients? Send a list. What percentage of your business does this customer represent? Does the organization give you equipment to do your job? Are you required to keep certain hours or go on  premise at the organization for some specified lenght of time? In short, they were trying to makes sure the type of situation you speak of wasn't happening.

  28. Eldredge
    January 29, 2014

    @Hailey  – Sounds like they covered the topic pretty well in their inquiry.

  29. Anand
    January 30, 2014

    @t.alex, I agree with you. I think HP failed to capture the tablet market. Moreover the sales of PC is on decline, so HP has no other option left. HP should start investing more in R&D so that they can compete with their competitors.

  30. Anand
    January 30, 2014

    They should also do this at all level, incuding management and higher management level.

    @_hm, I think this is done at management level as well. People who work at management level fetch higher salaries and are more susceptible to layoffs.

  31. Anand
    January 30, 2014

    Giving higher salaries to employees increases the consumer purchasing power and it leads to hihger Macro-economic growth.

    @apek, isn't it true that higher salaries leads to higher inflation and inflation always acts as a deterrent to the growth.

  32. Anand
    January 30, 2014

    Layoffs can be just a management decision for the company to keep up the cost of running but for an employee it is quite emotional.

    @SP, If company decides to go ahead with layoff then they should make sure that they pay well the employees who are losing their jobs. They should pay atleast couple of years of salary so that it helps them to overcome financial difficulties.

  33. Anand
    January 30, 2014

    If there is a over production or less business, its the management who must take the blame and take the pay cut or take some off time

    @SP, I agree with you. Management usually gets very high salary compared to the engineers hence they can afford salary cut. I think employees should also take salary cut if things dont improve soon.

  34. Anand
    January 30, 2014

     I have seen more than one situation where a company regretted a drastic talent loss from a major layoff. 

    @Eldredge, that is the reason companies should think twice before taking decisions like layoff. In my opinion companies should try to reduce the salaries instead of layoff route.

  35. Eldredge
    January 30, 2014

    @anandnvy – I have sometimes wondered why they don't cosider that option as well. Perhaps they are afraid of more pervasive moral issues. But there may be at least some instances ehere that could work.

  36. Hailey Lynne McKeefry
    January 31, 2014

    @Eldredge, truly it was very comprehensive. They wanted a list of my current clients with contact names and phone numbers, financial details and more. I understand what htey were trying to do but as an independant contractor it was a real trial… I had to spend several hours doing paperwork and i wasn't getting paid for that time. It felt like because this huge corporation (or other huge corporation) were trying to avoid paying people (or putting in for social security or whatever) that it was costing those who could least afford it (ME!) a lot.

  37. Hailey Lynne McKeefry
    January 31, 2014

    @anandvy, I've been watching HP for more than 25 years now…and it feels like the company had a problem evolving as quickly as it needed to. I'm a big fan of the company. They have historically had a strong corporate identity and they made/make solid products. The turnover in the corner offices in recent years though has been challenging.

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