How to minimize the impact of downsizing (page 1 of 2)

The global financial meltdown has cut deeply into company profits and put many firms at risk of closure.

Unsurprisingly, many companies have decided to trim staff as a way to cut costs amid the downturn.

According to a recent global survey of 1,430 executives by Bain and Company, 59% said they plan to downsize in 2009, up from the 34% who conducted layoffs in 2008. Only 37% of executives reported that their companies did not downsize in 2008, nor planned to in 2009.

While it is true that eliminating staff can help a company reduce its overhead, there are also risks involved when laying off a significant number of staff, says David Jackson, a principal at Mercer.

One example is that employees who survive the layoff may believe that their jobs are no longer secure, that the company has lost its direction, and that the organization does not care about them.

This uncertainty and pessimism can lead to an unwanted rise in departures among the remaining workforce. 'The people you most want to keep, those who are most employable even in the most abysmal economy, want to be with a winning team,' he noted.

There is also a risk that employees who have kept their jobs will 'retire in place,' by which he means they will become less engaged and therefore less productive. Surviving staff may also decide that the best thing to do is stay invisible amidst the downsizings, which may curb their operational effectiveness within the company.

Other hidden costs of downsizing include the costs of recruiting and training new staff when the economy inevitably picks up again, says Joerg Hildebrandt, a partner at Oliver Wyman. Companies also must consider the bad press that they might receive and the impact that the layoffs might have on their brand image.

'Downsizing should be a last option for any company,' Hildebrandt said. 'You have to be 100% sure before you start down this path that you execute it correctly.'

Downsizing tips

Given the huge emotional and economic impact a downsizing can have on an organization, deciding whether to lay off staff is one of the toughest calls that management can make. Following are tips to help ensure the best possible outcomes for a downsizing:

Determine the extent of the problem Hildebrandt warns that you can't proceed with a downsizing unless you first determine how bad the situation is in the company. In other words, companies must ensure that the downsizing is an objective decision rather than a subjective one.

This involves a thorough assessment of the company's fiscal standing, its business plans and goals, and the optimal number of human resources needed to achieve these objectives.

Review other options
Companies have a number of options at their disposal to cut costs, other than downsizing, Hildebrandt notes. If a firm decides that personnel costs must be trimmed, then it can look at other talent management programmes that allow people to keep their jobs, such as asking staff to work part-time or take sabbatical leave. Another option is salary reduction.

If jobs have to go, it does not mean that employees have to go as well. Try to find similar jobs for excess workers in other divisions or in new positions that might have been created due to reshuffling of the organization.

Follow applicable laws
In general, UAE employment law is more company-friendly than laws in Europe, but companies in the emirates should still do their homework to ensure they are following the letter of the law.