People are not beans

How many CEOs have you heard comparing their employees to a large, happy family? How many families do you know that turn their children out of the door when times are bad? I know the step-mother of Hansel and Gretel did precisely that but I suspect she is not the rolemodel for most contemporary CEOs. Yet sacking (let’s not use doublespeak like 'rightsizing' for it) large numbers of employees is considered a major qualification for CEOs.

Some CEOs think the family analogy is misleading (see "Your Company Is Not a Family" by Hoffman, Casnocha and Yeh in the June 17, 2014, issue of HBR) yet rare is the CEO or CHRO who doesn’t proclaim, through glossy brochures and glossier web-sites, that employees are the firm’s most precious assets. Isn’t it a bit wrong-headed – if not an outright betrayal of these claims – to be lopping off and discarding huge chunks of the corporation’s most valuable asset, even if it is to the applause of the stock markets? 

The knee-jerk approbation of stock markets to layoffs should alert us to the likelihood of a 'bean-counting' logic at play. One of the forms this logic takes is to fantasize that if six beans have to be expended on resources for getting a certain level of sale, then, when demand drops, three beans will suffice for resourcing half that amount of sale. Of course, this logic doesn’t work because organizations aren’t made of beans. Their functioning  approximates a living being more closely. A weight-lifter who manages a 150 kg cleanand-jerk with both arms wouldn’t be expected to touch 75 kg with one arm amputated.

The drastic shock that retrenchment imposes on a functional organization leads to many impairments. The first casualties are the mutual trust between the management and the rest of the employees, the extra commitment that prompts employees to strive more on behalf of the company and the sense of ownership which aligns shareholder and employee interests.

Most layoffs follow a LIFO order which deprives the organization of its youngest and most energetic talent while leaving the most expensive and exhausted people behind. Even worse, future attrition aggravates this pattern because the fittest remaining employees are more successful in finding more secure options outside. It is futile to hope that the employees left behind will work with the same spirit as before. Any hope the organization may have for employees to cooperate whole-heartedly in people-productivity improvements can be relegated to the same cloud cuckoo land where turkeys celebrate Christmas.

Downsizing becomes particularly pointless when the people laid off were doing productive work – which is most likely, unless an entire business is being shuttered or the management was criminally culpable of adding people without having enough work for them. The laid-off people will then be replaced by expensively recruited and generally less experienced substitutes. Even more pernicious consequences follow if the organization chooses to opt for the ethically and legally questionable practice of replacing laidoff staff, who were engaged in permanent work with underpaid contract workers, temporaries or trainees. The outcome can be literally fatal.

figure out the factors and people that precipitated it and what could have been done differently to prevent it. It would be a perverted mind that reveled solely in the 'toughness' of the opposing generals who condemned hundreds of thousands of their own countrymen to slaughter and appalling injuries. Why is our standard for judging corporate performance so different?

Not all corporates follow such perverse standards. Toyota faced a business crisis in the late 1940s (see "Toyota Culture" by Liker and Hoseus) and were forced by their bankers to lay off people. Kichiro Toyoda, the founder of the auto company, personally met employees, explained the situation and asked for volunteers to step down. Though the situation was not of his making, he himself resigned from the company. His successor and the remaining leaders of the company made the following two commitments, which became part of the Toyota culture:

These are the three Ps I extract from the Toyota example that should make corporate leaderships less prone to get addicted to what should be an extreme measure:

• Proportionate reduction of headcount and/or compensation across all levels. It is obscene to have top management enjoying large bonuses at the conclusion of major decapitation exercises.

• Punishment of those whose business models, planning, estimation and unquestioning recruitment led to the situation requiring the layoff.

• Preventive steps to avoid recurrence.

What can senior HR leaders do to avoid or deal with layoffs? These steps may not be as simple as ABC but they can be summarized as MNOPQRS:

• Retraining and Redeployment capabilities, honed and practiced as two very potent means of avoiding retrenchments.

• Productivity improvement of people as an ongoing top priority. During expansionary phases, this minimizes the need for more people. Equally important, during downturns, it provides the possibility of genuine head count reduction without the risk of deteriorating quality or the risks associated with subterranean sources of manpower.

• "No". The tough and much underused wonderword to deal with unrealistic business partner requests that are likely to lead to excess people recruitment. And, no, saying "no" to helpless campus recruits (to whom you have made an offer because of your faulty planning) doesn’t make you a tough guy in my book.

• Manpower Planning to ready people resources and sourcing streams that match business requirements and to prepare for contingencies caused by drastic fluctuations.

• Obliterating non-value-adding work even in good times so that only the barest essential people are ever taken on board.

• Questioning the need for layoffs and finding creative alternatives to them, just as modern medicine and doctor skills are evidenced by the less frequent resort to amputations.

• Scheme design in a manner that preserves employee self-respect and long-term financial sustenance to the extent possible.

It will be seen that almost all the action that needs to be taken by HR much precedes (and hopefully preempts) the need for layoffs. Not all of it falls comfortably within the role today’s HR business partners play. The term 'tough love' has become quite popular at HR seminars recently. Maybe it’s time to popularize 'tough partnering'.