Q. What are the short and long term effects of lay-offs? Does downsizing labor really work for companies in the long run, or is it more a short-term remedy to rein in costs?
A. In general, a lay-off is a tactical move if it’s not aligned with the overall strategic vision of the organization. And, in our observation, the effects of lay-off in the short and long run vary across organizations depending upon their growth phase – exponential increase, stagnation, or contraction. Companies experiencing stagnant and negative growth take the course of lay-offs as a tactical measure to save on employee cost and to preserve their bottom line. However, once the separation happens, the company loses knowledge, business continuity, and contacts & relationship with clients, losses which have long term consequencesthat are hardly accounted for!
Also, companies could be misled into considering only the cost of severance pay& benefits during lay-offs. However, as they begin to grow, the cost of lay-offs could come to pale in comparison to the cost of rehiring, finding the right talent, and training rehires, on top of the already lost productivity and lost brand value.
For example, the cost of replacement often costs 15% to 50% higher than the outgoing employee. And, on average, to fill a single position companies look over 100 resumes, and the process takes 2 to 3 months!
Q. If a company is planning to downsize, what is the way in which it should go about it?
A. If there are no alternatives for the company and a lay-off is the only chance it has for survival, this broad outline can help:
a) Decision of the board and management: Through a cross-functional team comprising HR, finance, business, and the legal department, executives should prepare a strong case as to why a lay-off is the only option for the company’s survival. The team should consider the operating country, ‘geographies,' along with the regulatory and legal frameworks involved. The lay-off decision should be backed with a strong plan to put the company back on growth trajectory.
A board solely focused on reducing overhead costs could lose niche talent that will have an impact on their business continuity. To ensure the status quo, it is recommended that the company work with HR partners who can help them with customized workforce models, workforce planning and talent portfolio management.
During this restructuring phase, companies should arrive at an optimal talent mix for the concerned business lines & function. Talent mix could comprise of permanent, temporary, professional staff and areas that require Just In Time hiring, which is aligned to their revival strategy.
b) Identification of business lines, functions & employees: Based on the business performance and long-term interests of the company, business objectives and functions have to be identified. When identifying employees, executives must use robust, objective performance management and lay-off criteria as pre-requisites for making decisions. Otherwise, the entire process can become subjective, and could lead to unproductive consequences.
c) Communicating to all employees: Management and concerned business heads should communicate with all employees about the decision and the reasoning behind it. This action will address the anxieties of employees within the organization, while not doing so will send ominous signals and feed the rumour mills.
d) Working with an HR partner: The organization should partner with an HR services company which specializes in career transitioning to offer necessary assistance & guidance.
HR services companies deal with affected employees with sensitivity, and provide guidance on approaching the job market. HR services companies, along with the client’s HR team, guide the affected individuals towards suitable job opportunities in line with their abilities.
e) Coaching & Counselling: For smooth transition, the career transition teams should include behavioural psychologists, experienced senior managers and case managers who can provide the best possible transition for affected employees to their next place of work.
The concerned employees have to be counselled about stress management, financial hardships, and performance-management issues. Necessary internal counselling and coaching should be extended to assist retained employees and HR managers who have to handle trying circumstances.
f) Stay in touch: Create an active alumni portal and stay in touch with your employees. Extending assistance even after their separation will not only help the employees, but it will also help the company as retain its brand value.
Q. Do lay-offs affect employer branding?
A. An 'employer brand' is a complex concept based on various intangible factors. In a nutshell, an employer brand represents the image a company projects as a potential employer.
In the short term, yes, the lay-off decision will impact the employer brand. However, if the company handles the lay-off smoothly, sticks to its post-lay-off revival plan, and extends assistance to employees even after their separation, its employer brand value can improve.
Q. Auto and media sectors have been the hardest hit in terms of lay-offs. Do you see more happening in the future given the current economic scenario?
A. We don’t expect the lay-offs to continue on this scale. But depending on the business environment, companies may be forced to realign their workforce. However, in the coming months we expect the market to pick up due to a good monsoon season, increased demand from the rural sector, and growth-oriented policy reforms from the Government.
Q. What is the future for temporary workers in the auto industry?
A. “Just In Time” manufacturing was pioneered in the automobile and manufacturing industries, and they are leading the way in implementing Just In Time hiring as well!
The new mantra across all sectors, especially in automobile companies, is to ‘Breathe Through the Demand (BTD)’. As automobile companies realign their operations and workforce with the business environment, they will increasingly bank on models like Just In Time hiring, the recruitment of domain experts through Professional Staffing, and Outcome-based engagements separate from the temporary workforce model.
These models will not only give them the advantage of lower overhead costs, but will also provide access to the right talent at the right time. Though some of these models have just been implemented in India, in the long term we can expect them to expand across different sectors of the economy.
Q. Countries like the US, Austria, Portugal, France and Germany have laws that leave the employee with unemployment benefits or adequate compensation from their companies when they are laid off. Do you think it is time that India introduced such compensation in its laws?
A. Like the USA, Austria and Portugal, India has well-defined laws to safeguard the rights and interests of employees in the event of a lay-off. As per the Industrial Disputes Act of 1947, no establishment with more than 100 employees is allowed to lay off personnel without prior permission from the Government. In case of establishments with less than 100 employees, the employer is requested to pay 50 per cent of the total basic and dearness allowance during the lay-off period. Therefore, lay-offs are regulated by law in India.
Q. How does downsizing affect the company's working culture? Can you give me examples of how companies have changed track because of it?
A. As a policy, we don’t comment about specific companies. A few companies take the decision to downsize to reach their long-term strategic goals. In the process, they could undergo exercises to understand their core business, and retain people & functions central to their strategy. The result could be a very growth-oriented, leaner and more efficient company. There are a few examples across the globe across sectors like FMCG, Auto/Engineering. If the right methodology is not followed and if the decision has been taken as a tactical measure, the resultwill be weak and uninspiring!