Corporate trauma - the unseen cost of staff cuts

I’m a glass half full person but I feel the need to rant about the short-sightedness shown recently by so many organisations as they respond to challenging trading and economic conditions by cutting staff.

Over the past few months the latest round of redundancies has really started to bite. In
17 years of running my own businesses, working with corporates across most sectors, I’ve never witnessed the mass short-sightedness of the staffing decisions being made.

Victoria’s official unemployment rate of 5.5% and the closure of iconic companies making the headlines don’t even begin to tell the whole story. What about the unreported well qualified, top performing senior executives out of work? What about the uncertainty and financial stress felt by families in what would be considered the higher socio-economic levels of society? Higher salaries often come with higher commitments such as school fees and mortgages which are not easily trimmed.

Many companies have been going through redundancy rounds on a regular basis, especially since the first Global Financial Crisis. Let’s face it – in terms of these organisations’ people there’s not much fat left to trim.

Cost cutting announcements are made and people often face weeks of uncertainty waiting to know their fate. Those who ‘survive’ the cut are asked to work longer hours, pick up parts of carved up roles that they are not necessarily equipped to do, in environments of low morale and fear. They’re effectively hostages in their own office.

Examples are everywhere. Like the best performing Director of Business Development at a big four professional services firm. He was working with top tier clients in a large vertical sector when it was decided that his role would be combined and relocated to Sydney – despite his family not being in a position to move. Admittedly he’s one of the fortunate ones with a good payout, but what’s the real cost of his redundancy package to the company? Consider the message this sends to other high performers as well as the damage to the client relationships and loyalties this person has built over the years.

Not to mention his knowledge and know-how that is likely to end up benefiting a competitor. All this could have been avoided had the company shown a bit of flexibility and realised that $500 a week for airfares and a night’s accommodation would have kept everyone happy.

Then there’s the global, publicly listed organisation already facing a cultural crisis when it sent its Director of Organisational Development on the road making people redundant. Shortly after, he was also unexpectedly and unceremoniously taken out by his departing leader. This man was unable to even apply for the role that was left because it had been decided that it was cheaper to lose him than his less qualified, inexperienced colleague. When the CEO found out and admitted it was not the best decision for the company and tried to intervene, it was too late: the damage was done.

I also know of a government department that is about to lose one in five roles (like all the others), despite the fact that they are world-class in what they do and are expected to take on even more responsibility for the whole State. How’s that going to work?

Across the ditch, New Zealand has already seen 2500 public sector jobs lost since November 2011. Morale and insecurity is at an all-time low in the public sector, and the once vivacious capital Wellington, whose lifeblood is government, is hobbling along wondering what’s next.

If past experience is anything to go by, these same organisations will soon be hiring back some of the staff they let go – at great expense – when they realise that with them went a lot of vital organisational knowledge and experience.

I know these decisions aren’t easy and there are lots of factors that come into play but I urge leaders to spend more time thinking about the wider consequences of losing people, beyond a short-term focus on ‘the numbers’. Focus instead on reducing the costs associated with bureaucracy, siloed thinking, re-work, information hoarding, mistrust, poor communication, disinterest in the customer and lack of accountability.

If you are going to make staff cuts consider the real cost of the associated personal and corporate trauma.One of our associates, Simon Bruce, has written an excellent article on the importance of a solid re-ignition plan for a successful redundancy program. It will ensure remaining staff are ‘re-ignited’ to stay focused on their daily tasks and the organisation’s strategic direction.

It's not me, it's you – Redundancy Re-ignition Programs [PDF, 565Kb]

Posted: Wednesday 18 July 2012

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