Some thoughts on Layoffs

Life is hectic in XLRI and no time to do any thing extra other than finishing assignments, projects and meeting various deadlines. We are having regular classes on Human Behaviour and Organizational Structure by one of the world class Professors, Mr. Jittu Singh . Here are some of my thoughts on "layoffs" which had been a buzz word since year and half.

What are Layoffs?
As per Wikipedia, Until 80s, the term Layoff was used for temporary interruption in work when factory work cyclically fell off. In modern context, it is considered as permanent termination or elimination of jobs. The phenomenon has grown since 1980s. Various researches have been conducted to find the effectiveness of layoffs. Most of them have suggested potential gains to corporations and organizations. It is considered as the best tool for turning around declining organizations, cutting cost and improving organizational performance.
How layoffs are made to work?
Whenever organizations find themselves under stress of poor revenue/profits growth or falling revenues/profits or sustaining losses or turning around themselves from loss making entities to profit generating organizations, layoffs are considered. Some companies are conservative but most of them are very aggressive in laying off people. The stance- Aggressive or conservative depends on geography, socio-economic context and local laws. Generally American companies are aggressive and they go for blatant, open job cuts while Indian companies are considered to be conservative as they always adopt layoffs as a last measure to full fill their objectives.
The general approach to layoffs is find non-required job posts, non-performing or non needed employees. Once companies have list of employees, they try to find out cost savings, factoring in onetime expenditure on severance package etc. Generally, American companies tie this list of layoff with potential cost savings in dollar terms which they present to share holders. This is where Indian companies differ. Generally, In Indian companies, layoffs are kept confidential (in fact they make them as non transparent as possible), no cost savings are presented to shareholders. Thousands of jobs are lost in services and manufacturing companies both in urban and rural India but none are reported in media as these companies are either not high profile or Government undertakings.
During current recession or slowdown, Drivers, waiters, construction workers have lost jobs in urban cities and have returned back to their homes in UP, Bihar, Bengal and Orissa. These job losses are not even reported, forget about someone being worried about them.
Need for layoffs?
Layoffs are generally considered as a cost saving measure. During late 90s and early 2000, many PSUs were restructured and lakhs of employees were given VRS. The whole idea was to bring efficiency in system to weed out low performers, less productive workers in age group 50-60. The whole process was well orchestrated as PSUs had to be accountable to Govt, shareholders and powerful unions. Hence, good severance packages were given in the form of golden handshakes.
Let’s look at slip side of layoffs
· Money lost on training employees
· Low morale of rest of staff members affecting their productivity and leading to poor customer satisfaction
· Fearful and shortsighted employees.
Challenges
Committed and motivated employees are most productive and lead to higher customer satisfaction. While layoffs bring immediate cost savings but they lead to low morale among employees. Employees are strained to work more and share a greater work load which can lead to degradation of customer service ultimately leading to customers leaving for other competitors.
Experts have suggested to layoff during good as well as bad times. This makes the policy well accepted among employees; it looks fair from employees and well as from employer point of view. But companies never consider layoffs in good times. They need those employees during good times and when they are in trouble, they lay them off adding to difficulties of employees in finding suitable jobs in downturn.
Researchers have agreed on prompt, proactive communication of such important policies but barring few exceptions, companies seldom give warnings to those employees, make any statement in the company or outside to suggest such an action and when they do act, it turns out to be a bitter surprise for employees.
Employee morale definitely gets hit by dissonance in sayings and doings. People become angry and fearful. If companies claim themselves to be transparent and benchmarks setters, then they should assess and address these issues. This would clarify doubts among employees and would not give scope of gossip mongering.
"Loyalty doesn't mean taking care of an employee who does not produce value”. But well defined policies and procedures are very much required. Indian Companies have been blindly following American model of organizational restructuring. They can’t forget that each job loss in America is tracked and employees have unemployment insurance to fall back on. Also, since layoff is natural consequence of profit orientation, it is well accepted in American society not like here in India where there is no job loss tracker, no unemployment insurance and where layoffs are considered a social stigma.
Laid off Employees are given 3-6 months’ salary along with gratuity. Is it enough for those employees who have built liabilities over the years, who are paying home, car loans and sending kids to schools and colleges? This is where private companies have to learn from their government counterparts. PSU Employees happily parted away from their organizations unlike in private companies where they leave with tears in their eyes and deep agony in their hearts. It's not inherently disloyal to let employees go during tough times, but experts suggest doing so only after other avenues have been fully explored such as salary cut of those identified employees. Companies suffer in long term if they are not imaginative and simply go by rule book.
According to http://blogs.harvardbusiness.org/hmu/2009/03/dont-let-layoffs-ruin-customer.php , “The smartest companies today, even when they're in trouble, are moving employees around, having them share jobs, having them work reduced hours so the company can preserve jobs. Although the jobs may be different and may not add up to the same number of hours or amount of compensation employees enjoyed during the best of times, at least these people are still working. That creates trust between employees and management, and that's going to affect how these employees deal with customers.”
For those who must go, the best procedure is to "lay off people as if they were future customers”. When you let someone go, try to put together a safety net, do the best you can do, provide relocation support. Treat these people as potential future customers and potential future employees — as if they will one day is in a position to send business to your company."
I believe, the real test of an organization is in tough times and seemingly, many Indian companies are trailing by a big margin.