Almost daily, newspapers, business magazines, radio and television carry reports of companies, large and small, that are downsizing. Their attention is chiefly focused on
impact to employees, as they are ones most acutely experiencing effects. But what are effects on companies? Downsizing, rightsizing or any of number of synonyms for cutting expenses and employees, may provide a decrease in operating expenses in near term, but how will they impact longer term future?In my experience over several decades of business cycles, I have witnessed a succession of economic contractions and expansions and although at times outlook has appeared bleak, in fact, far bleaker then our present circumstances, every decline has been followed by a subsequent period of growth. It was not that long ago that we awoke to "Black Friday" when stock market appeared to teeter on brink of a cataclysmic collapse. What followed however, was beginning of what has proved to be one of longest lived economic booms in memory. The lesson here is that there will be a new economic tomorrow and in all likelihood it will begin sometime in 2002.
Therefore, it is with eyes wide open that business leaders need to carefully consider long range effects their cost cutting actions will have on their organizations. This is especially true as nature of those cuts, especially where they concern personnel, are fundamentally different today from what they were in past. Circa 1950's, 60's, 70's 80's and even much of 90's, downturns in employment for most part meant layoffs. Certainly, there were specific industries where structural decline resulted in large scale permanent job losses. However, in general, most cutbacks precipitated layoffs vs. permanent terminations. Not so today. The new order is that of permanent severance. The proverbial "pink slip" has turned to bright red.
Moreover, level of employee being severed has also changed dramatically. In previous decades, cuts were heavily weighted toward production personnel and therefore, first line, blue collar worker oriented. Today, with our heavy reliance upon technology to drive economic engine, cutbacks in both manufacturing and service sectors are skewed toward white collar workers. Additionally, more senior workers in their 40's, 50's and 60's have borne brunt of reductions more heavily than ever before, as their higher cost compensation and benefit packages are targeted for maximum near term bottom-line savings.
Conjointly these changes have set in motion what could become a veritable time-bomb for companies that decide to pursue cost reductions through massive staff cuts. The negative consequences will include:
1.Lack of a recallable employee pool. Historically, layoffs inherently communicated at a minimum possibility, if not probability, of being recalled by employer when economic conditions improved. Many furloughed employees expected to eventually return to their employers and, reacted to layoff accordingly by taking interim and part-time jobs. Today many employees are not only informed that their release is final, they are provided outplacement services funded by their former employers. Thus, employers themselves are ensuring that these people will, indeed, not remain available to them. Many of more senior employees, finding new employment difficult if not impossible and having personal savings at their disposal, are choosing to become entrepreneurs, thereby, forever removing them from available labor pool.
2.Poor morale & lack of trust among younger employees as terminations increasingly target older employees. Much has been exposited recently in press about disturbing loss of employee loyalty. Terminating large numbers of older, more senior and experienced employees who have faithfully served corporation for many years, has a profound long term effect on younger, newer employees. Place yourself in their shoes for a moment. They have already been indoctrinated by friends, relatives, neighbors and media that business, especially big business, is not to be trusted. Now they see their co-workers, supervisors, and mentors being fired because "cost cuts need to be made and these individuals represent higher per capita costs to organization" The message is clear and they understand. The reward for loyalty is to be axed when you are over fifty and unable to find another comparable position. They may not bolt today, due to a tightening job market, but they will remember and when economy improves they will seek a future where they feel more secure.
3.Loss of knowledge and experience base. This is a frequently overlooked aspect of cost of losing long term employees. Many companies and even industries are currently developing knowledge bases in order to capture and access organizational knowledge resources. Yet, no matter how effective these databases are, and they can be extremely beneficial, they will never be a substitute for knowledge, experience and wisdom that rests in veterans of organization. Although this is true in terms of deductive knowledge, it is even more important regarding organization's continuity and history. People need to feel a sense of belonging to more than just present, tha "now" of an organization. They also need a sense of past and future. Without this, there are no ties, no traditions, no continuity and often no ethics and values.
4.Loss of corporate culture and available mentors for existing and new employees. This loss of continuity is also reflected in dispossession of corporate culture. I am a great believer in change vs. status quo. However, there are some things that should not change. "In this company we do thus and so, because we believe it to be fundamentally right." Every organization needs to have incontrovertible statements that transcend fluctuating business climate and current trends. These values can and should be committed to pen and paper, but they are not passed on in this manner, at least not primarily. Rather, they are taught and lived and mentored from one person to next. The fewer seasoned people company has to pass these on, less they will be able to maintain soul of organization.
5.Loss of established customer service and customer contact points. It happens to all of us. One day you call your favorite supplier or vendor and ask for good ole' Joe who you have done business with for years and are shocked to learn he is no longer there. "Why? Has he died or contracted cancer,?" you ask. "No," is response. We have had a major reduction in staff due to economy. In silence you ponder: "If after all these years Joe is gone, who's left? Will they even be in business tomorrow? Maybe, I should begin looking around for another supplier." No one is irreplaceable. However, long term customer and supplier/vendor relationships are invaluable; they also say something about reliability and stability of your organization. Although organization's investment in these relationships does not show as a line item on asset portion of your balance sheet, do not underestimate their value, especially in a day when global search for new suppliers and vendors is made instantaneous by internet. Without relationships, price rules and only price that matters today is lowest one. Years spent in commodity businesses taught me this principle all too well.
