Layoffs Cut Costs But Yield Turmoil

It’s a painful consequence of a shaky economy, and one that causes financial and emotional turmoil for workers and their families.

It’s also one of the most drastic measures a business owner can take, but sometimes it’s the only way to stay afloat.

Downsizing – employee layoffs – affected nearly 134,000 workers in several industries in April, according to the U.S. Bureau of Labor Statistics.

Some of those layoffs might have been an unavoidable result of the slowdown (or recession, depending on who you talk to) many economists claim started in late 2007.

However, there are often ways to cut back on spending without having to hand out pink slips, several Arkansas employment experts said.

Some of these involve asking employees to be flexible with regard to hours and job responsibilities, while others are more long-range and preventative in nature, such as business forecasting and efficiency monitoring.

When layoffs are unavoidable, it’s critical to handle them in an honest, legal and ethical manner. Transparency and openness with employees are also important factors when negotiating layoffs, several experts said.

Other ways employers might tighten the reins during a downturn include cutting business travel, curtailing marketing efforts and cinching discretionary expenses.

There are some signs that businesses in Northwest Arkansas and around the country are making cutbacks in spending.

Sales and stock prices have both declined at some of the nation’s biggest office supply retailers like Office Depot, Office Max and Staples, while international business travel fell by 3.9 percent in March, according to the International Air Transport Association.

Ad revenue at some of the largest media companies was down as well, which is a likely indicator that businesses are pulling back on marketing.

Quick Cutback

Although it’s not always ideal, the fastest way for businesses to save money is to make cuts to payroll, said John Hendon, president and founder of Bell Consulting LLC of Conway.

But layoffs come with an array of negative effects, and not just for those who will be forced to embark on a job search.

When managers and business owners don’t communicate well with their employees regarding layoffs, some of the best workers will lose trust in their current employers and seek new jobs, Hendon said.

In addition, some of the workers who weren’t laid off will probably feel that lost trust, and that will likely translate into lower productivity and loss of motivation, Hendon said.

“If you’re going into a downsizing situation, the first thing to do is to be very upfront,” he said.

It’s important to make sure employees understand the process, why it’s being done and that it wasn’t a lack of effective management that forced cuts, but an unfortunate economic reality.

“They’re much more accepting of that situation than if they don’t have a clue and you’re just telling them to accept it or else,” Hendon said.

Part of being open might include actually opening the books and telling workers exactly what the financial state of the business is.

“The more open an organization is in sharing financial information about the state of the organization, the more credibility the employer has and the more willingness employees will have to work through it,” said Don Marr, owner and president of HR Factor, a consulting firm based in Bentonville.

Involving employees in the process of dealing with an economic downturn, through meetings and brainstorming sessions, can also yield useful results, Marr said. This can be helpful in eliminating inefficiencies, but could result in layoffs.

“You may be carrying more labor than you have to because of inefficiencies in processes,” he said.

Another area to look at is customer touch points, Marr said.

It’s important not to get rid of services that customers find valuable. If eliminating a position hurts a vital aspect of customer service, it might cost more in the long run.

“You could end up stepping over a dollar and picking up a dime,” Marr said.

On the other hand, business owners must ask themselves why they provide certain services. They should find the places in their businesses where they can realign, reduce and restructure, he said, echoing the recycling program mantra.

“If it doesn’t have a benefit or value, and no one is paying for it, eliminate it,” Marr said.

There are legal concerns related to layoffs as well, although less so in Arkansas – a right-to-work state which has fewer unions that employers have to negotiate with regarding contracts and seniority.

The main law that affects layoffs in Arkansas is the Worker Adjustment and Retraining Notification Act, a federal enactment that dictates employers must give employees as well as state and local governments 60 days notice for all layoffs of more than 50 workers, said Randy Wright, an employment attorney and employment law consultant with Bell Consulting.

Critical Communication

There are, of course, ways to save money on payroll that don’t come with as many of the negative effects as laying off employees, Hendon said.

Some of these include hiring freezes, voluntary leaves of absence, early retirements, alternate schedules and shifting responsibilities.

Many of these measures will cut payroll expenditures, albeit more slowly than with layoffs, Hendon said. At the same time, these steps usually cause far less turmoil in the workplace and can often leave employers in a better position when the economic situation begins to turn back around.

Other steps include asking if some workers want to take a voluntary reduction in hours or a leave of absence, Marr said. A modified schedule such as a four-day workweek or reduced hours can cut costs as well.

Reduced hours or a leave of absence could give some employees more time focus on their work-life balance, though that might be tough to explain to a mortgage lender or landlord.

It’s critical to let employees know what is expected of them and that it’s likely that many of them will be taking on new responsibilities, though that won’t always mean they’ll have a bigger workload.

That requires communicating to employees that “we’re not actually adding to your load, we’re redistributing job tasks and that allows us to avoid layoffs or downsizing or involuntary transfers,” Hendon said.

Some businesses can get very creative with this practice.

Hendon related an anecdote about a company he’d worked with during a recession several years ago.

The economy at the time was shrinking, and orders had slowed significantly. Instead of firing some workers, this business opted to use them to make improvements to its manufacturing facility. Some were even put to work painting.

As a result, when the economy picked back up and orders started coming in again, the business was in a good position to get back up to speed, and didn’t have to hire and train all new staff.

Smart business owners are always looking ahead and forecasting for what the economic landscape will be like for their industry in two to three years, Hendon said.

Business forecasting can help prevent mass layoffs by determining employment needs ahead of time.

“If not, we go along kind of oblivious until we hit a point where the organization is bloated and now we have to make drastic changes in the employment picture and it’s going to affect motivation,” he said.

Valuable Vision

A slowdown can be a good time for employees to get in-depth or one-on-one training and professional development that might have been overlooked when everything was buzzing along at top speed, said Chuck Hyde, director of business development at the Soderquist Center for Leadership & Ethics at John Brown University in Siloam Springs.

“Philosophically, we help people try to understand to be careful with the short-term horizon,” Hyde said. “You don’t want to be on a yo-yo where you’re always reacting and cutting too much too fast.”

A big part of what Hyde and his colleagues at the Soderquist Center focus on is strategy, foresight and planning. When the good times are rolling, Hyde said, it’s important to be planning for a slowdown, so that one’s business or organization isn’t caught off guard by it.

The flip side of that logic is that during a downturn, it’s important to be prepared for when the economy starts humming again, he said.

“We always caution people that you can’t cost-cut your way to prosperity,” Hyde said.

That means that even during a downturn there are some expenditures that are too important to wait on, whether it’s making an acquisition, a new hire or an equipment upgrade.

Many people only look at the short-term, putting off a potentially beneficial expenditure until some unknown future date when it becomes affordable. That inaction can cause missed opportunities in the meantime, Hyde said.

Advertising and marketing are other expenditures that business owners should be reluctant to cut, Hendon said.

As long as an advertising campaign is successful, it doesn’t make sense to cut back on it when it’s driving customers to your business.

“If you do cut back on that you’re going to end up cutting employees,” Hendon said.

Advertising needs to be looked at as an investment, and if it is providing a good return, rather than asking if it’s affordable to do, business owners should ask themselves whether they can afford not to do it, Hyde said.

Tough times can be a “great opportunity to live out your values as a company,” he said. “And how you do that can make a difference in how your employees view you.”