The end of 2022 and first quarter of 2023 have seen near record-setting numbers of layoffs, especially among big tech companies such as Amazon, Salesforce, Spotify, and Microsoft. While there has also been a rash of layoffs among equity-backed start-up companies, for ambitious job seekers the well-known giants have been seen as an employer of choice. Unfortunately, most companies end up either regretting their workforce reductions or regretting how they managed the process. Layoffs can leave a lasting stain on the employer brand and all too frequently the market changes and they end up competing for the very people they let go. Hence, looking at alternatives to layoffs is essential for organizations.
Senior leaders of any organization contemplating a layoff should first understand the root cause of the need to do so. Is there an unexpected drop in demand for products and services? What caused the drop and how permanent is it? Was the company’s projected rate of growth overly ambitious and hiring outpaced growth? Is there a new competitor impacting market share and revenue? Have the company’s products and services become outdated and no longer top-tier? These are just some of the questions that should be answered in order to avoid returning to this precarious position in the future.
As with most challenges, they come with opportunities and leaders must be willing to step back from the panic and look for them. Salaries are a big expense and represent the easiest way to change most company’s cost structures. However, before jumping to that conclusion, leaders should consider three broad categories of alternatives to layoffs, all of which can be combined to accomplish the financial objective.
Voluntary Programs
There are usually some number of workers who would be interested in changing their own circumstances for a variety of reasons but have never been given the option. Voluntary programs can use incentives to encourage early retirement, reductions in scheduled hours, temporary furloughs, and full separation with severance pay. Too often, layoffs result in losing much needed talent while there are workers willing to volunteer as part of the reduction. Process matters with these types of programs as they need to be completely voluntary and not seen to be coercive; they should be compliant with applicable labor laws, and not offered selectively to individuals but rather to certain roles, departments, divisions, or the entire company.
Voluntary programs have a number of benefits; they don’t impact morale like an involuntary layoff and workers that remain don’t suffer any survival guilt as they go on with their careers. Labor costs are lowered and you are left with a dedicated group of employees who self-selected to stay with the company. You are less likely to face any wrongful termination lawsuits, and the public will view your company more favorably.
New Products or Services
In difficult financial times we go directly to our company’s cost structure to solve the problem quickly. Instead, this is actually the best time to look at alternative revenue streams and test out new products or services. There are large sunk costs in onboarding, training, and assimilating employees into a company’s culture. Now is the time to leverage those sunk costs to kick-start a new business-line. Leaders should become strategic opportunists before letting a short-term burning fire distract them from what may become a success story.
During the COVID-19 Pandemic there were a number of services where demand increased. We’re all familiar with the boom in tech products to support virtual work, but there were other opportunities too. Pet adoptions spiked up so almost all products and services associated with pet care were in high demand. More people became interested in writing a book, so book publishing services flourished. Children, many getting less time with their teachers, needed tutoring services. Of course, these opportunities came about because of a global pandemic, but it punctuates the need to understand the root cause for whatever the circumstances we find ourselves in. It might just be that out of those stressful circumstances there are new opportunities just waiting for a strategic and opportunistic leader to create a successful venture.
Staffing Services
When you employ specialized skills there is a good chance that – non competing — companies exist that need temporary workers. Consider offering those specialized skills through your own staffing company. The infrastructure you create can be used permanently to make your company more agile, able to flex workforce size as needed, without the negative effects of a layoff. Imagine the return on that investment as workers return from external assignments with new skills and subject matter knowledge that can now be used to broaden your own company’s talent pool.
Staffing companies are forecasting worker shortages and heavy competition for specialized skills. It is likely with the support of technology and remote work you won’t have many people waiting on the bench for an external assignment, but when you do, turn them loose on the freelance market. Help them create work proposals and apply to projects, negotiate rates, and then use that funding as part of your staffing service revenue stream.
In summary, layoffs create stress not only for the individuals affected but also for the culture of a company, making it strategically important to look for alternatives. While sometimes unavoidable, it should be the last consideration… not the first. Before tarnishing your employer brand, consider voluntary programs that may provide a more amicable separation from workers. Think strategically about previously unseen opportunities to generate new sources of revenue and leverage your workforce to pursue them. Be innovative and consider the benefits of internalizing a staffing agency; import new skills and knowledge and flex your workforce in a more agile way. Send a signal to your workforce that you are committed to them and their ongoing career growth by considering these alternatives to layoffs.
