· 2 min read · Features

Job cuts are a false economy

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News over the past year has been rife with stories of job cuts and recession-induced redundancies. In fact, a recent study suggested over 60% of UK companies have made staff redundant during the downturn. In most cases, the move is intended to cut costs and reduce overheads.

But while a downsized workforce may help lower expenditure in the short term, making staff redundant can have a damaging effect on the company's longer term profitability.

Information gaps

It goes without saying information and people's experience are the most valuable assets that many companies own, and an organisation's intellectual property is key to its survival in a tough climate. But when employees leave they take with them vital knowledge, experience and understanding that cannot be replaced - whether that is knowledge of customer contacts, a project history, or understanding of processes and services they offer. In many cases, there is no system to capture this information; as many as one in five organisations say they can no longer access information held by employees who have been made redundant.

This can have a dramatic impact on the longer-term success of the business, threatening efficiency, productivity, and even customer retention and profit. Staff churn may unsettle customers as resources are reduced and customer service suffers; departing employees risk leaving projects unfinished which the remaining team struggle to pick up, or fail to complete. Deadlines may be missed, opportunities overlooked and general efficiency may be reduced. This could risk losing customers to rivals and can cause real damage to the company's ability to operate and grow.

Plugging the hole

If redundancies are deemed absolutely necessary to an organisation's survival, business leaders have a duty to ensure crucial information is retained within the company. That means making efficient use of technology to store data and manage information. It will help decide who must be retained.

The process is very simple. Before instigating any cost-cutting measures involving key staff, businesses must establish what information those individuals hold, what it means to the business, how it can be gathered, stored and shared, and who should be able to access it. Within that assessment it will become clear whether the company can really afford the long-term loss of those people departing.

If it can, then measures must be in place to ensure the systems are available to retain the information, applications and resources the departing staff use in their day-to-day roles, so that those left behind can access it quickly and easily.

Technology holds a lot of the answers when it comes to capturing and sharing vital information, but its use must complement a sensible approach from the board. Too often, decisions about redundancies are made based on absolute numbers; picking a point based on cost where the axe will fall. Organisations need to think of the value those people bring to an organisation and the damage their loss will cause.

And if cuts are unavoidable, sabbaticals and unpaid leave can represent a more intelligent way of reducing staff costs while retaining vital knowledge and skills.

Alwyn Welch is CEO of Parity