Jan 17, 2009

When is the right time to do layoffs

It seems that the right time, if there ever is a right time, to do layoffs is during an economic boom, when your company and the industry as a whole is going great guns. Counter-intuitive, isn't it? Yes. Because the conventional thinking goes that it is during a downturn that you should do the layoffs, to reduce costs, to become leaner, and to focus. But I propose that layoffs when things are good is better. Think about it. Firstly, it is more humane, because the laid off employees stand a better chance of getting jobs when companies are hiring than when they are not. Second, and this is the delicious part, if you have conducted the layoffs based on some rational and logical process of weeding out the under-performers, then these people, when they do find a job, are likely to head to your competitors, right? That itself has two advantages. First, and this is the obvious one, your competitor with more subpar employees has to be good for you. Second, more subpar employees is going to tick off the super-smart people at your competitors, who will see this addition as proof that the company is heading towards trouble. So, they are more likely to want to look for alternatives. Knowing that **your** company laid off these under-perfomers, and that **their** company hired them is only going to make **your** company look smart. Eh?
But does it work this way? Nah. Of course not. Because boom times are a period of empire building, where quantity trumps quality, and where herd-mentality ensures that companies use the precious currency of an economic boom to squander the opportunity of focusing on and building world class competencies. Also, doing layoffs is considered a sign of trouble. Which hurts the stock price, which doesn't make executives very happy.
Doing layoffs, at any point, is a sure sign of having screwed up - you either hired the wrong people, or you hired more than you needed to - so by doing layoffs when everyone else is also doing so makes your culpability much mitigated, leaving the executives with a very well-preserved sense of self-esteem.