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196 Managing Customers Through Economic Cycles

Any scenario involving layoffs negatively impacts the
remaining employees which invariably impacts productivity.
And if insufficient employees are laid off and the recession
continues, the impact to the company’s bottom line might
not be sufficient to realize any benefit from the initial layoffs.
And if the economy starts to recover quicker than expected,
the company could be left understaffed to meet the
challenge.

Rather than go straight to layoffs, some consider alterna-
tives, such as:

● voluntary retirements
● salary cuts
● hiring freezes
● reductions of hours
● changes in benefits and expense policies.

Spreading the pain

The costs of layoffs go beyond the morale problems they
cause – both for those laid off and those who keep their
jobs. Unemployment insurance premiums spike. Depending
on the company, there are severance packages to consider
and outplacement services (costly in these days of bigger
demand for them). Litigation is a not insignificant risk. In
addition a company faces “start-up costs” once the economy
starts to move to recovery.

On the other hand, there’s nothing like a good economic
downturn to get rid of dead wood. A sagging economy can
be an opportune time for management to deal with perform-
ance problems by using the bluntest instrument possible.
Firing people is often difficult to execute, but an overarching
justification (like an economic downturn) tends to lessen
complications in doing so.