Layoffs, a short term fix, detrimental to the company, should be the last resort
Layoffs are done to save money. Unfortunately, they are usually a short term fix, detrimental to the company. So why do so many companies persist in using layoffs as a first choice for cutting costs, and what are some of the alternatives.
Sometimes things don't work out as forecast. Clients delay purchases. Suppliers raise prices. Competitors steal market share. Quarterly, at least in the US, companies have to face the forecasts they made. Public companies have to face Wall Street too. Investors don't like surprises. They don't value executives who miss their numbers. And they expect quick and strong action to addresses the issues.
Unfortunately, the very pressure to take action quickly ultimately works against their own best interest.
Pressing for immediate action forces executives to cut costs, as opposed to raising income. Foolishly therefore, reducing the workforce has become an automatic response for companies who need to cut costs to look good for Wall Street. It's wrong. It's counter-productive. It should be a last resort, not a first choice for a skilled executive.
Job cuts don't save money
McKinley, points out in "Organizational downsizing: Constraining, cloning, learning" that "while downsizing has been viewed primarily as a cost reduction strategy, there is considerable evidence that downsizing does not reduce expenses as much as desired, and that sometimes expenses may actually increase. More than thirty years ago, James Lincoln warned that the costs of layoffs generally outweigh the payroll savings to be gained from them."
Job cuts reduce performance
John Dorfman, a Boston-based money manager, analyzed the post-layoff performance of a sampling of companies. The review included 11 to 34 months of data for the companies sampled. His article Job Cuts Often Fail to Bolster Stocks reports an average performance gain by the