In many companies, personnel reduction is the first area to come up for consideration in order to address cost reduction goals. Layoffs are an emotional process. Substantial layoffs should be one of the last places you look for cost reduction as it can have long-term detrimental effects when you cut your intellectual capital— particularly your best and most experienced people. Individuals that know your IT environment and your business are extremely valuable and you should treat them as such. Before diving into layoffs, consider all the short-term and long-term consequences and costs, such as:
Top Tip 1: Efficiency of experienced staff
"An area we would not look to cut is senior staff. We appreciate the efficiency of having solid experienced staff."
—Joe Jansen
AmeriPride Services, Inc.
AmeriPride Services, Inc.
- The company may have to pay severance packages and unemployment costs which can be significant.
- If the downturn or cost reduction need is only over the short term, the costs of recruiting and training new hires when the company rebounds can be more than the savings realized in the layoffs. In many areas of IT, the costs to get fully productive in complex custom environments can be substantial.
- It is difficult to replace the talent of senior experienced staff that has both technical and business knowledge. Do not underestimate the value of these individuals.
- If a company begins to cut current employees, the remaining employees start worrying about their future. It can cause productivity issues and the loss of some good people as they begin to look for work elsewhere.
- Consider union rules and constraints as well as company policies.
- Comply with all federal and state rules and regulations, such as the Worker Adjustment Retraining Notification Act (WARN) and the COBRA requirements for separated employees. Check with state laws regarding payment of wages, insurance continuation, severance benefits, recommendation letters, and access to personnel records.
- Make sure you have proper backup of knowledge and skills. It is critical to avoid deficits of key skills and knowledge. One company offered a laid off employee a $50,000 incentive to train another employee that would be taking over, but you typically do not have an opportunity for knowledge transfer.
"Right-size your organization to align with business conditions. Make sure you have the right people on the bus, in the right seats and have a high-performing organization. Similar to coaching a sports team, you need to field the most effective team you can. Trade players if you must. There is nothing wrong with asking people to do more, especially in bad times. You can run at 130% utilization or higher for a period of time."—Dave Brady
Starkey Laboratories
- Prepare to respond to inquiries or complaints regarding how you decide or handle layoffs, how the layoffs will affect other employees, and questions on additional layoff plans.
Layoffs can be useful to realign the skill set of your organization. For example, you could choose to eliminate areas of older technology such as mainframe programmers and then when able to, hire a skill-set to match your project needs.
Layoffs can also be helpful to eliminate the lower performers. This could be due to work ethic or work output, attitude, absenteeism, or history of performance. Every organization has a few employees that are at the bottom. By eliminating them and hiring better performers, you are able to do more with less. Your exceptional employees can be ten times more effective than low performing ones, yet they do not cost ten times the money. They are a bargain from a financial perspective[1]. By hiring high-performing employees, you may be able to actually cut your budget. The trick is to know how to spot potentially top-notch employees in an interview as they can be difficult to discover and, of course, there are no guarantees.
Top Tip 3: Relationship management and project management
"I would not cut in the areas of relationship management and project management. These areas drive efficiencies."
—Larry Bonfante
USTA
USTA
Top Tip 4: Real backup
"To mitigate the risk of any potential layoff, we need to make sure that everyone has a true backup. This is not a theoretic backup, but someone that can pick up the work, knows the passwords, and is familiar with the environment."
—Bruce McIntosh
Graco Inc.
Graco Inc.
You should not need a cost reduction layoff to take care of the low performers in your organization. Have a defined process to deal with them on a regular basis with sound management practices. However, the reality is that often in good times and with busy agendas, managers do not always address performance issues with employees. A cost reduction effort can be a good time if you are not performing this management discipline on an on-going basis. Particularly in large IT organizations, the low performing employees can often hide. In a small IT organization, even if you have one bad employee among ten, that is 10 percent of your workforce. You can achieve up to a 10 percent increase in productivity by replacing the bad employee with a high-performing productive one. The increase could be even greater if the bad employee affects the productivity of others. Customers and other IT employees notice low performers so dealing with them improves customer service as well as employee morale. A forced-ranking process can be helpful to identify low performers in an organization.
Top Tip 5: Temporary assignments
"Consider offering employees temporary assignments in other parts of the business instead of making staff reductions. This is a win-win as they learn a new area, get training and exposure to the company, and you are able to reduce costs."
—Peter Bellavance
Tastefully Simple
Tastefully Simple
Top Tip 6: Layoffs
"You will experience strong emotions when doing layoffs, you don't have anguish with it, you have gotten too immune and look at people as objects. You need to recognize that it will be difficult."
—Anonymous CIO
Downsizing is never pleasant. If layoffs are necessary, do it carefully and plan well with the following recommendations:
- Spend time on honest and open communication to both those who are laid off as well as those remaining.
- Work with human resources and the legal department in order to ensure the process is complete. Follow proper communication policies and laws.
- Work with human resources to plan support for the employee's departure. This may include a transition packet that helps the employee navigate these difficult times. It can address topics like COBRA, 40IK rollover, and job search sources. Even paying a few thousand dollars on job coaching will ease the transition and show others that you took care of the employee.
- Document your discussions and reasons for your decisions.
- Determine the best process that treats employees with respect and dignity.
- Make sure you do not target any particular ethnic group, gender, age, or protected class as lawsuits can cost more than the money saved in a layoff. Comply with the Older Worker Benefit Protection Act (OWBPA) and the Age Discrimination in Employment Act (ADEA).
- If a layoff is necessary, do it once and move on. Do not have layoffs on a frequent basis as they significantly affect morale, employee stress, and overall productivity.
- If a layoff is necessary, do it quickly as it does not get better by delaying it. Every month you delay is money lost.
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