Newsweek's article on layoffs
I have recently read one of Newsweek's articles titled "Layoffs are bad for business-The Downside of Downsizing" by Jeffery Pfeffer. I felt intrigued as I believed that layoffs were good for a company facing an economic crisis and decided to read the article.
After four pages of weighing the pros and cons of downsizing (layoffs), my perspective changed. Layoffs are definitely bad for companies and businesses, especially in the face of a global economic crisis, and there is a growing amount of academic evidence that supports this view. I will now quote an example from the article:
"A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs with larger and permanent layoffs leading to greater negative effects."
In the article, directly below this sentence are two other studies also slamming the act of downsizing with real statistics and proven facts. The main point of this article is that downsizing is bad, and that companies should stop downsizing to prevent further damage to the business.
How will downsizing affect the business in any case, you ask? There are various reasons.
-Layoffs as a cost-cutting measure aren't reliable. Because of the announcement/rumour that there would be layoffs, there was lowered morale among employees, thus leading to the possibility that some of the best staff who is capable of finding other jobs may quit, and so the company may have to attract them back by means of higher pay and/or better incentives.
-Layoffs don't increase company profits or productivity. This is shown to be true here and here
-Not surprisingly, downsizing also affects the people that have been retrenched. Ever watched CSI or Mentalist? Just in case you never did, these are both shows on crime-solving and murders. There is a trend in both shows where work-related murders are shown very often. It is the same in the real world. Revenge is a strong instinct, and people who are jobless and have just been retrenched are 6 times as likely to exact vengeance unto his previous boss.
However, there really are some cases in which companies have no choice but to downsize. A few ways to minimise the impact on employee morale (as seen in the article) are allowing the retrenched to say goodbye, and having a better severance package.
Downsizing - It is an entirely bad decision, no matter what situation one's business is in. I strongly discourage anyone to do this.
Here's the link to the online version of the article: http://www.newsweek.com/id/233131/page/2
posted by Fuzzball @ 8:13 PM
1 Comments:
Though the points raised in the article are all valid, I feel that sometimes layoffs are necessary for the survival of the company. Not to say that layoffs are always good, but if a company was just set up in 2007 and was hit by the recession, it would either have to fold or retrench some staff, unless it had a lot of investors who were willing to help. At least there is a chance that a company would be able to bounce back from the negative efects of the layoff. If the company folds, there is no hope for it anymore. All capital will be lost and the founder will likely have some financial difficulties afterwards. Therefore, even if layoffs may be bad for the company, sometimes it is necessary.
Quote from page 3 of the article "There are ways that companies can try to minimize the damage when they eliminate jobs. For instance, don't announce that you're cutting jobs without identifying who'll be affected; that makes every employee (including your best performers) anxious and exacerbates the damage. Companies that behave humanely—by providing generous severance packages and allowing displaced employees to say goodbye to colleagues rather than marching them out the door—are likely to see a smaller hit to morale. Well-run companies also communicate clearly about why they're eliminating jobs, and share the pain by cutting senior executives, not just front-line workers." This quote shows a technique to minimise damage from layoffs, I believe that there are many others aswell. If done properly, layoffs can help a company pull through a recession or cashflow problems.
The writer of the articl is clearly biased, as he himself states that he had friends who were laid off. As he himself says, it is hard to study the causal effect of layoffs. I feel that he has too little evidence, too little data and too little statistics to support his argument.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home