You have to wonder, why is it that every time there’s an economic slowdown, the RIF, redundancy, right-sizing, and layoff mindset takes over, and essentially predetermines that companies will not be adequately staffed or physiologically prepared for the next business upturn? After all, the next growth period always begins the day after the worst day in a recession. Possibly the answer lies not in economics, but in geology. The world is round today, but it once was flat. That’s right, it’s only in the last five hundred years that it became round. Now, I know all the geology majors out there are already shaking their heads. They believe the Earth was always round, and always will be. Well, it wasn’t always round. Until 1492, the people of the world believed their world was flat, and so it was. They planned their lives, their economies, and their perceptions around the concept, and all of the Earth’s possibilities were fixed and focused on that simple, incorrect, and all consuming belief. The leading minds of the time developed facts and formulas to confirm the belief that they existed on a “platter” and not a globe. All other beliefs, therefore, had to bend to fit into the core belief system. So not only was life impacted by one wrong idea regarding geology, but that wrong idea infected all their thinking. It’s not unlike making a simple subtraction error in your checkbook: every other entry after that is also affected. Nobody debated the point. It was understood; “the world is flat.” If you wanted to be a part of the medieval version of middle management or wanted to be considered “ye olde” executive timber, you better have agreed that the world was flat (Didst thou not see the memo?). The “flat world” was their “big picture.” We also have our own version of flat-world thinking in the 21st century: “If profits are lower, we need to lower headcount.” It exists because, like those who insisted on believing in a flat world and demons waiting beyond its edge for the unwary, no one has effectively challenged the belief, or rarely even tried. When those of us in HR/staffing do try and resist the momentum to RIF, layoff, or “right size,” it is usually with a sentimental or humanistic argument that makes us sound more like frustrated social workers and “goody two-shoes” than insightful business professionals with a reasoned and unique strategic outlook. When not being sentimental, we resort to speaking of all the effort “we” wasted staffing up, only to have it undone. Again, our business partners see this argument more as an exercise in whining and “me-ism.” They assume HR/staffing to be guilty of once again not looking at business from a profit-orientated perspective (“HR does do not see the big picture!”). So when the “flat world society” comes to the strategic staff planning meeting, recommending RIFs as the ultimate cure for a bad case of “recession,” why not try and counter with a study on the return on investment (ROI) supporting retention? (Bleeding and leeches were also once considered by main stream intelligentsia as the cure for “bad humors” till somebody said, “Hey, why not bed rest and plenty of fluids?”) Remember, there are no self-evident truths, there are only truths placed in evidence by activists. Developing a Counterpoint ROI is more commonly associated with justifying expenses generated by acquiring, purchasing, or investing in companies, services, products, or any other area of capital expenditure. It is in essence a structured justification proving that, despite the expense, a viable gain will occur if an outlay of funds is allowed. A good ROI also develops the hazards of alternative actions other than those proposed (Hey, don’t listen to me, but when we fail, don’t come crying to me either!”). The sum total does not always have to be a bottom-line cash result or gain, although that certainly helps in winning over the finance side of the table. To develop a counterpoint, you must first know what the intended result is of the action you wish to counter. Question: Why layoff good and productive employees? Answer: To save money! So to counter, you must prove it does not save money. Therein lies the disputed territory that few HR/staffing professionals ever challenge. The logic of layoffs is so simple, it must be true, “If I am $36 million short of planned profit and I lay off 600 employees making an average of $60,000 per annum, I will save $36 million. If I layoff another 200, I can still post an excess to planned profit.” (That Harvard MBA is really paying off. Why not lay everybody off and save a fortune!) Just as a “flat world” was universally accepted, this formula is rarely disputed. As a matter of fact, like the “flat earth” dogma, to oppose it, you are considered dangerous. Yet, despite universal acceptance, it is wrong. So, before we develop our “Round World ROI”, let’s do an old Benjamin Franklin close checklist on the pros and cons of layoffs to see if a case for retention can be developed: Pros:
Save on Payroll/Benefits Cons:
Severance costs
Rehire costs
Lost Trust and Loyalty
Productivity Issues with Nervous Survivors
Potential Litigation
Wrong Persons Let Go or Retained
Lost Personnel Hiring/Training Investments
Understaffed for Inevitable Growth
Paranoid Survivors (“CYA” VS initiative)
Industry Reputation Challenged (Branding)
Customer Confidence in Corp Viability Shaken
Expenses Incurred With Employee Alternatives*
* The last item is usually not considered. After “RIF-ing,” and before rehiring, companies do spend money to compensate for lost capability. Temps, contractors, outsourcing, and offshore resources are less expensive than FTEs, but it is a cost that should be deducted from the “assumed” savings incurred by layoffs. Now, I realize that the above list proves that I am biased on this topic, but can you really think of any other benefit a company incurs other than immediate cash savings when it lays off productive and skilled employees? Severance and “parachutes” offset that gain at the outset. Yet, biased or not, as the list above indicates, there are many good business-based reasons not to layoff. But many of the “con” items above are subjective. How do you assign objective cash value to a subjective item? Subjective value or not, there is a cash value in all of them. The problem is trying to uncover the formula specific to your organization. How do you do that? Well, for one thing, get out of your office, the information is not always there on file. Go to the various departments you support and ask the following questions:
- Marketing. What percentage of new business will we miss based on cancelled or delayed releases of upgraded or new products? Will we be able to support our existing client base? What new and existing revenue can be lost? Estimate the increased advertising costs to offset impact on company reputation in our market; the cost impact on our channel partners, suppliers, and subcontractors; and the impact on our ability to “cut good deals” due to our perceived weakness in the market.
- Sales. What percentage of potential sales will be lost due to a reduced sales force? What is the average “person hours” per deal? How many person hours will be left in our sales force? What is the estimate of lost business due to lack of customer confidence? Is the competition cutting back, or staffing up? What damage can RIFed sales persons have on prospects and existing clients if they “change sides” either as the result of being RIFed or fear of being RIFed?
- Operations. Can we meet production/service goals with an RIFed department? What revenue loss is going to be faced due to unfilled, late, or lower quality products or services? Will we need to spend unplanned dollars for temporary, contract, third-party, or offshore assistance, and what is the estimated cost? Do we have pre- and post-productivity reports from the last RIF in this organization?
- Legal. What has been the average number of litigations and/or total legal costs per 100 involuntary terminations? (Include legal fees, court costs, fees, fines, settlements, and lost time and productivity for those involved.) Can you give a cost estimate on the number of employee legal actions in all areas during periods of growth versus periods of RIF?
- Human Resources. Can you research the potential for an increase in sick days, employee relation’s disputes, and stress related employee issues during periods of past RIFs. What is the total cost in severance and “parachutes” for employees chosen for RIF?
- Recruiting. What is the estimated cost of replacing those employees RIFed at this time, and what is the projected time to recruit replacements in future? Estimate impact on recruiting and the cost to “unbrand” this company as a risky career choice if we become identified as a “company that lays off good people.”
- Training. What are the estimated costs of retraining new hires in future to obtain approximate current level of expertise and productivity?
Finally, ask appropriate individuals throughout the company the following questions:
- The stated savings created by a RIF are based on 12 months of reduced payroll. Do you feel that you will be able to meet your business plan goals with a reduced staff over the next 12 months? If you foresee rehiring within that period, how many, how soon?
- Based on past practice, how many voluntary terminations do you suspect will occur as a result of a RIF and employee loss of confidence, and would you need to replace them (cost-per-hire offset against the cost savings of a RIF)?
Research all of the above against data you can also develop from the Department of Labor, professional organizations, and industry-specific, human-resources-orientated information websites. Within your industry, look for articles and interviews with competitors regarding their plans, or on the advantages of deciding to “see it through.” Putting It Together Armed with the above data you can develop a simple report, with a complex and detailed base, that indicates the true impact of an RIF. First calculate the known savings of an RIF, as a function of the total number of layoffs times the salary and benefits of the laid-off employees, with a variable based on 3,6, 9 and 12 months – the estimated period of “no rehiring.” Next, subtract from that initial savings figure the known costs of an RIF. This includes, but is not restricted to, severance, “parachutes,” unemployment costs, and outplacement costs, which are constant over 3,6, and 12 months. There are no time-based variables on items like severance. Next, subtract the estimated costs of rebuilding after an RI,F based on known costs in recruiting and training. Finally, estimate the “subjective costs” incurred by an RIF, based on the company-specific historical research you did or on industry-based information. What you’re left with is the total actual savings – or losses – incurred by an RIF. The number may ultimately justify the RIF, but at least your company will have made the decision impacting something this important based on facts, and not on the immediate impulses of a panic-stricken company. The possible realization of the actual minimal savings of a RIF may serve to make the cuts less draconian. Or, if in your own circumstances the numbers indicate a greater loss than gain, your actions may even reverse the decision. Saving the jobs of good and valued employees is always worth a couple of days or weeks crunching data and working Excel or Access. Besides, imagine the shock at the meeting with your business partners when you have a business-based, detailed analysis of a planned action presented to refute or justify a plan of action. They may forget you are HR/staffing for a minute. Especially if you do not chose that meeting to also bring up the holiday pastry selection. Each company is a world unto itself, and therefore the data points, format, critical issues vs. non-critical issues, and dollar values will vary from company to company. The type of presentation should always match the style of your business partners. In the universe of business, there will be those “planets” where the “flat world society” is right and an RIF is justified. But there are also plenty of “round worlds” waiting to be discovered. It just takes a little effort, a little creativity, and the desire to explore and discover new worlds. Besides, we all know the name Christopher Columbus. Has anyone ever heard the names of the guys who disagreed with him? Have a great day recruiting!