Are you sure you want to layoff?
Business confidence might be rising and planned layoffs may be falling, but ‘bad time’ is far from over and we can expect many more instances of layoffs in coming days, albeit in a smaller scale. But sometimes it makes you wonder, is this the only answer to recession? While there is no denial that at times you do not have any other option but to make employees redundant, unfortunately in many instances businesses consider this as a god send and the only available measure to tackle the less-than-favorable situation. Sometimes they do it without thinking about the long-term consequences and trade off with the short-term ‘gains’.
But ideally, one should try to exhaust all other alternatives before deciding to layoff.
Are you sure this is ABSOLUTELY your last resort?
Are you sure you have carried out proper business analysis and the business is not going to pick up sooner than later?
Are you sure it will be easy to hire when the table turns?
Are you sure you have taken into consideration the fact that when you fire employees, you are not only loosing the ‘people’, but also loosing the training and development cost, time, expertise, experience and knowledge associated with them?
Are you sure the whole redundancy issue won’t hurt your company image?
Are you sure you understand that if you can manage to avoid layoff, it will be a big boost for your company’s brand, market share and overall business performance when the good time comes?
Are your sure you don’t know about the Boeing and Airbus story of the 90s?
In case you don’t, let me tell you.
Boeing was long the overwhelmingly dominant producer in the world of commercial aircraft. However in 1993, Boeing announced a cut in production of more than 40 percent because of order cancellations with the labor force to be cut by a full 35 percent. In addition, a special early retirement program stripped out 9000 more workers who had special skills and the retirement program alone cost $600 million.
By early 1996, as the order cycle changed direction again as it had often in the past, production delays and missed deliveries at Boeing mounted as the lack of trained assembly workers meant parts assemblies needed to to reworked, with newly hired managers simply unfamiliar with building airplanes. By late 1997, overwhelmed by thousands of production foul-ups, production of the 747 and 737 aircraft was temporarily halted, while the company reported a $1.6 billion third quarter loss, with another $1 billion expected. And when analyzing the situation, among others, the company spoke of “productivity inefficiencies associated with adding thousands of new employees.”
On the other hand, Airbus did not take the route of Boeing’s. Instead showed steady expansion of production. And by early 2004, Airbus took the market share lead in commercial aircraft away from Boeing, won more gross orders than Boeing in four of the five earlier years, and established a much bigger order backlog, with a much higher R&D budget and a percentage return on sales similar to Boeing’s.
So what could have Boeing done to avoid the mess-up?
• It might have kept virtually all its staffs as business turned down in 1993.
• It might have accepted lower share prices for a year or two.
• Cut its dividend payment
• Reduced executive compensation.
• Tightened operations instead of blowing away tens of thousand of employees.
A $600 million retirement program expense would have been unnecessary, and massive losses from failed production efforts would have been avoided if Boeing would have opted for continued employment, absorbed the cost of temporarily unnecessary workers, kept its head down through the slump and retained its commanding share position as the market recovered.*
Morale of the story? Sometimes it’s wiser to bear the short-term pain for the long-term gain.
* The Boeing Airbus story taken from James C. Abegglen’s book titled ’21st-Century Japanese Management’.
Photo credit: Schoschie
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