Article: Not all layoffs are due to a bad economy

Talent Management

Not all layoffs are due to a bad economy

There is the 'black swan event' of mass layoffs, which number tens of thousands in one swing of the axe. Then there are smaller job cuts happening daily that can be far more brutal. What's causing them?
Not all layoffs are due to a bad economy

If the ability to predict staffing needs is key to business growth, then companies in a hiring spree during the pandemic appear to have miscalculated their forecasts. Case in point: tech layoffs spurred by weakening demand and high inflation.

A total of 32,000 tech workers have lost their jobs as of the first week of February because companies are still trying to rein in the impact of their pandemic-era overhiring, according to Roger Lee, founder of Layoffs.fyi, an online tracker of job cuts in the industry.

Behind the headlines of workforce reduction a.k.a. corporate ‘rightsizing,’ there are people whose lives are caught in the undertow and who are left to figure out a survival plan just as they are terminated.

From a macroeconomic point of view, job cuts in 2024 so far appear smaller, more contained and “more targeted” than job cuts in the previous year, says Lee.

For one, the tech sector still needs highly skilled talent but of a different variety – those equipped with skills for the AI era. Apart from high-tech roles, green jobs and healthcare jobs are also on the rise.

Meanwhile, jobless rates in some key markets remain low. In Singapore, for example, the unemployment rate remained at 2% in the fourth quarter of CY 2023, according to the Ministry of Manpower.

The same is true for Australia whose unemployment rate stands at 3.8% yet again. In the U.S. – despite news of tech layoffs – the jobless rate is steady at 3.7%, based on data from the U.S. Bureau of Labor.

What may seem like mild ripple effects on the overall health of the job market can feel like a riptide for workers living through the trauma of termination. A cursory look on social media will reveal thousands upon thousands of real-life horror stories of people who have been let go.

Also Read: People & Work Insights 2024: Welcome to the fast lane

Weak leadership and the ‘layoff mentality’

As with every economic crisis, people’s lives and careers are upended, and their financial standing is jeopardised once companies start shedding jobs.

Every layoff stings. “Not some layoffs. Not most layoffs. Every single one,” says author and management expert Steve Stauning, who believes job cuts are a sign of bad leadership.

“Whether a leader overhired; couldn’t properly forecast demand; was ignorant of their strengths, weaknesses, opportunities, and threats; and/or simply couldn’t profitably run their business, the resulting layoffs are a clear indication of the leadership’s failure,” Stauning writes.

While the risk of a recession and, more recently, the adoption of AI are often used to justify retrenchment these days, not all layoffs are due to a bad economy or tech displacement.

Some layoffs result from a more sinister cause: poor workforce management. Meanwhile, other job cuts are treated as just another “lever” to pull in workforce planning.

According to Matthew Bidwell, a management professor at Wharton, the latter is especially true in organisations that espouse a “layoff mentality” as part of their bid to be disruptive. Changing business demands will dictate hiring and firing sprees at any given moment because some firms see this as being agile and keeping in step with market movements.

Layoffs are a double-edged sword, however. Evidence suggests: “When shareholders are more powerful, companies are more likely to engage in layoffs,” Bidwell says. “Yet announcements are usually met with declines in share price … shareholders love [layoffs], but it may punish them even more.”

Also Read: Too much optimism? Advice for business decision-makers

A certain volume of job cuts has become particularly worrisome for industry experts like Stauning. Far from the ‘black swan event’ of mass layoffs, which can sometimes number tens of thousands in one swing of the axe, smaller job cuts happen daily and are less seldom reported in mainstream media.

These smaller cuts seem almost negligible on paper but can be far more brutal. They often happen by surprise and without proper planning for outplacements and offboarding because of mismanagement.

The role of bad managers in layoffs

Predictability is key to business success, and talent planning requires as much, if not greater, examination during economic uncertainty. Companies that have survived previous downturns know how to map their trajectory realistically. They won’t simply overhire during an economic boom only to shed jobs when the going gets tough.

Reductions of 3% to 5% of the workforce might not warrant greater public scrutiny because these layoffs seem marginal. But on closer inspection, such job cuts affect anywhere between a few dozen and a few hundred workers at a time. Yet these cuts, Stauning believes, could be easily prevented by transferring, demoting or retraining staff.

In short, the worst job cuts stem from poor management practices. Leadership anthropologist Ron McIntyre chalks it up to 10 factors:

  • Poor strategic planning
  • Overhiring
  • Failure to innovate
  • Inefficient cost management
  • Short-term focus
  • Lack of employee development
  • Ineffective communication
  • Poor decision making
  • Low employee morale and engagement
  • Loss of knowledge and expertise

“While massive layoffs may provide short-term financial relief, they often indicate poor management practices that have long-lasting negative consequences for a company,” McIntyre says.

“Businesses with solid management, who lead with integrity, transparency and compassion will prioritise long-term growth, invest in employee development, and make strategic decisions that promote stability, sustainability, and success. They will also lead by example not excuses.”

Leaders will do well to take a nuanced approach to layoffs. In the short term, job cuts can help address overcapacity. But in the long term, there is minimal proof layoffs improve profitability and overall financial standing.

What happens when layoffs are inevitable?

Even the most seasoned talent leaders know layoffs are necessary to get back on track in a downturn. But here's the caveat: there is a line that separates organisations that see retrenchment as a last resort and those that readily wield the axe because of a culture of mismanagement.

When job cuts are on the horizon, they will inevitably affect employee morale – even productivity. Business and HR leaders will benefit more from transparency and ensuring their integrity is intact even at the worst times.

Mel Miller, co-founder of Tandem, a continuous feedback and performance management platform, recommends being upfront and never making promises leaders cannot keep.

“Most employees know that their relationship with their employer is never guaranteed,” Miller told People Matters Global. “There are a few things HR leaders can do to help.”

Ensure promises that cannot be kept aren’t made. “No one can 100% guarantee anyone’s job. [HR must] ensure leaders know what not to promise. Some of the biggest effects on employee morale come from feeling like employees were lied to.”

Be transparent where possible and appropriate. “Going back to ‘no one likes surprises’ – there is a balance with transparency in organisations. Ensure the team knows the company goals and how the company is tracking those goals.”

Provide the why. “In the absence of information, people will make up their own narrative. Repeat the why verbally and in writing. People typically need to hear things up to a dozen times to retain the information. Reiterate the message in different formats.”

Arm managers with information. “Ensure managers understand what has happened. People will go to their managers before C-level and HR.”

Have 1:1 conversations. “Managers should connect with direct reports to address survivors’ guilt, set expectations, and provide a space to answer questions.”

From the Asian financial crisis to the 2008-09 credit crunch to the COVID and post-COVID layoffs, companies have gone through periods of downturn. The more prudent have gone on to survive.

While a bad economy can easily be made the culprit behind some of the deepest job cuts, it’s worth examining how some examples of retrenchment are also simply the aftermath of bad decisions.

How do you handle the challenge of layoffs?

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Topics: Talent Management, Business, Employee Relations

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