Role of a leader during organizational layoffs

In today’s time, an organization has to face many challenges from its internal as well as external business environment in the form of govt. policies, economic conditions, environmental concerns, social and demographic conditions, workforce satisfaction, compliance with the corporate governance laws, changing technologies etc. But two dimensions which really pose challenges before organizations in order to survive are automation and the fierce competition. There are several measures which an organization takes in order to subdue these environmental challenges. One of them happens to be rethinking workforce strategies, which are often painful. Typically, organizations turn to episodic restructuring and routine layoffs and in long run both of them invite some unwanted but unavoidable employee related issues like; reduced employee engagement and decreased level of employee satisfaction which result into reduced company profitability. 

In such testing times, role of a leader emerges to be very important. A leader can mitigate the negative effect of such workforce-related issues. Professor Sandra J. Sucher from Harvard Business School in her eight years of researching on best practices for workforce change in global multinational companies, found that often companies do bad layoffs (layoffs that aren’t fair or perceived as fair by employees and that have lasting negative knock-on effects), do layoffs for the wrong reason (done to achieve short-term cost cuts instead of long-term strategic change) or worse, do both. Regardless of how easy it might be to cut personnel, leaders should remember that doing so will have consequences. In order to achieve the set goals for which layoff are being done it’s important that leaders take into consideration the impact of it on employees and try to make it look fair. 

According to a report by Entrepreneur.com (2017), India saw massive layoffs within a year in many major sectors, like, banking, e-commerce, IT, manufacturing etc. Companies like L&T, HDFC bank, Wipro, Infosys, etc. have drastically laid-off their workforce in order to reduce losses and improve productivity. But it has been observed that bad, wrong and unplanned layoffs, doesn’t help achieve objectives of the firm. 

In 2018, Sandra J. Sucher and Shalene Gupta, in their article, “Layoffs That Don’t Break Your Company” published in Harvard Business Review, have mentioned that companies that shed workers lose the time invested in training them as well as their networks of relationships and knowledge about how to get work done. Even more significant are the lighting effects on survivors. They also highlighted the findings of Charlie Trevor of University of Wisconsin–Madison and Anthony Nyberg of University of South Carolina which indicates that downsizing a workforce by 1% leads to a 31% increase in voluntary turnover the next year. Meanwhile, low morale weakens engagement. 

Layoffs can cause employees to feel they’ve lost control: The fate of their peers sends a message that hard work and good performance do not guarantee their jobs. A 2002 study by Magnus Sverke and Johnny Hellgren of Stockholm University and Katharina Näswall of University of Canterbury found that after a layoff, survivors experienced a 41% decline in job satisfaction, a 36% decline in organizational commitment, and a 20% decline in job performance. Quality and safety suffer, according to research by Michael Quinlan at the University of New South Wales, who also found higher rates of employee burnout and turnover. 

Meanwhile, innovation declines. For instance, a study of one Fortune 500 tech firm done by Teresa Amabile at Harvard Business School discovered that after the firm cut its staff by 15%, the number of new inventions it produced fell 24%. Although, layoffs are not new but looking at the past examples of how companies (like, Nokia in 2008 and again in 2011) have addressed it and what were the consequences, a leader can justify it to make it look like the right strategy and win employee trust and loyalty. 

As we see that the role of a leader becomes even more important at the time of crisis. In the times of shifting economic landscape, automation and fierce competition managing workforce remains a challenge. Right strategies and support can help leaders analyze their current workforce and can help them make the transitions necessary to their success. Companies tend to prioritize short-term financial results over the long-term well-being of their employees, and forget that employees are the backbone of the organization that enables a company to keep delivering the products and services that ultimately generate stakeholders’ benefits. Thus, leaders with concern for employee well-being can help make the workforce transitions smooth and effective.