· Insights

Why redundancy should only be a last resort

Rising costs and interest rates may be leading some to look at their headcount. But there are sound reasons for finding alternatives to redundancy.  

There is no doubt at all that the economic headwinds are starting to blow a little stronger. So many organisations will be looking ahead and considering the actions they might need to take to contain rising costs if a recession starts to grip this coming winter.

For HR, that can mean looking at scenario plans which will almost certainly include headcount reductions.

But is the redundancy option a knee- jerk reaction, or could there be other alternatives you should consider first?

Handling the news of jobs cuts at a time when many employees are struggling to keep a roof over their heads or even feed their families is a tough one for the best PR machine. Nobody wants to be the next PR disaster.

However well you think you can handle it, in our social media age it’s all too easy to see the story spiral out of your control and hit your reputation where it hurts, further damaging your business at a time when it could do without the negative publicity.

Even if, as a last resort, redundancies are unavoidable, there are ways to implement them with compassion and understanding to minimise their impact on your employees’ wellbeing. After all, it isn’t just those who have to be ‘let go’ who feel the impact as they watch their colleagues leave the building.

So why should you think again before axing jobs?


The case against layoffs  

First, take a look at the research evidence that shows it isn’t always the panacea some think it is.

Wayne Cascio, professor of global leadership at the University of Colorado, concluded his research into the long-term effects of layoffs on organisations, by showing that they often tend to trigger a ‘death spiral’ of falling organisational performance.

In a study of almost 1,500 downsizing announcements between 1990 and 1998 he showed that the negative effect on stock market returns was greater than the effect of the downsizing. Cascio tracked the performance of downsizing firms against non-downsizers for nine years. The downsizers never outperform those who don’t downsize.

More recent research has shown that the majority of companies implementing layoffs suffer a decline in profitability that persists for at least three years.

Even though, in the short-term, productivity rises, as fewer workers are covering the same volume of work, the impact on the ‘survivors’ carries demonstrable costs. As well as declines in job satisfaction and engagement, survivors show a 20% drop in job performance. Downsizing a workforce by just one per cent can also lead to a 31 per cent increase in voluntary turnover the following year.

Add that to the potential reputational damage to your brand as an employer, and the likely costs in having to attract new talent when things pick up again, and it’s clear that the full cost of redundancy is something you need to minimise.


So what are the alternatives?

There are plenty of real-world examples showing how organisations have avoided widespread redundancies through some innovative thinking.

Bob Chapman, the CEO of US manufacturing firm Barry-Wehmiller, resisted pressure from his board to make thousands of redundancies when, in 2009, a $20m order fell through. Instead, as part of a package of measures, he asked every employee to take four weeks of unpaid leave at a time of their choosing. Not only did this avoid the need for redundancies, in 2010 the company had its best year ever.

Michelin overhauled their approach to restructuring by integrating product, territory and resource planning. This new approach avoided the closure of a French factory in 2015 – saving 720 jobs – by creating capacity to manufacture a new line of premium tyres earlier than originally anticipated.

AT&T committed to retraining 100,000 employees whose jobs wouldn’t exist in a decade, instead of making them redundant and hiring for new skills. The result was a reduction in product development cycle time of 40 per cent and time to revenue improving by 32 per cent within 18 months of the retraining programme. 


Redundancy – last resort, not first response

The choices made in a downturn will affect not just a businesses’ immediate performance, but the performance it shows when the downturn ends and business once again picks up. Doing what you can to minimise redundancies puts you in a much stronger position to recover faster.

Layoffs should, therefore, be a last resort, not your first response. Reskilling, redeployment, and reorganising just how work is carried out – these are all highly viable alternatives to redundancy – especially if you start planning six to 12 months out from when you might need that headcount to be reduced.


When redundancies are unavoidable

When redundancies are required, take some simple steps to deal with the situation compassionately. Notifying people in person – even virtually – is far better than messaging, email or pre-recorded announcements. Managers tasked with delivering that message also need proper training and support to do so sensitively. Notification of redundancy is possibly the hardest task a manager has to do with loyal and productive employees.

As we’ve seen, releasing employees can have negative effects on brand and performance because of the impact on both the leavers and survivors. This can be minimised with support such as outplacement programmes for those leaving and resiliency programmes for those that remain.

Other useful tools a specialist provider can offer include such things as alumni sentiment analysis to monitor how people are feeling about their experience of exiting your organisation.  

For more guidance on best practice when handling layoffs you can download our brief guide.


Why the sound strategy is to plan ahead  

There is no reason to wrestle with tough decisions about reducing your people costs until you pass the point of no return. Only consider redundancy when you have exhausted all the other options open to you. It is possible, even in a downturn, to make savings without resorting to layoffs.

The solutions of rapid redeployment, reskilling and accelerated internal mobility are all alternatives which have been proven time and again to show positive results. Not only that, but they can put your business in a much stronger position when the bounce back comes, as it inevitably does.

Our own consulting teams are here to help. We have experts with experience in developing innovative solutions which can be implemented quickly and cost effectively.

It’s time to really think differently about restructuring, and that time is right now.

Simon Lyle is managing director, UK at Randstad RiseSmart