The Downsizing Dilemma (Part 1)

In previous articles, I’ve discussed how MSPs can prepare for the growing pains that come along with success in any business sector – but it’s even more painful to contemplate the difficult steps that sometimes have to be taken when the economy, changing customer needs and trends, and other factors make it necessary to downsize, at least temporarily. In this article series, we’ll look at how to best handle this grim reality if it rears its ugly head.

Even the largest companies aren’t immune. In recent years, tech giants such as Microsoft, Hewlett-Packard and Google have engaged in “workforce reductions” – a nice way of saying “layoffs” – along with other cost-cutting measures such as reducing employee benefits and perks, decreasing travel and training budgets, and outsourcing various functions.

These and other methods for dealing with expenses to generate a more comfortable profit margin may be necessary, but they often don’t sit well with employees. If downsizing isn’t handled properly, it can result in damage to employee morale, which can lead to lower productivity that hurts the bottom line even more. If you find yourself in a position where you must downsize, there are ways to soften the blow.

First let’s talk about the “biggie” – how to handle it if you must impose layoffs. It’s my observation that one of the worst things you can do in terms of employee morale is to announce (or let leak) the news that a company downsize is being considered. This can be especially bad if you announce it before a final decision has been made. Some company owners or top managers do this on the principle that employees should not be kept in the dark or “surprised” with bad news.

While wanting to be honest with your workers is admirable, keeping them in suspense for weeks or even months, wondering whether they’ll have a job or not, is not kind. Yes, those who aren’t let go may feel an initial surge of gratitude when they find out, but they’re likely to forget that quickly and remember the agony of waiting for the axe to fall for a long time to come. A better way is to wait until you know for certain that layoffs will have to happen, know how many there will be, and know which specific employees will be laid off.

Then the question becomes whether to make the layoff start immediately or give the employees who will be leaving a few weeks’ notice to give them time to look for a new job. Although it might seem more humane, having the “walking dead” in the workplace day after day may be a strain on both them and the “survivors.” It will also be difficult for the employees to look for jobs if they’re expected to continue working at their current jobs. And there is always the possibility that a laid-off worker will be angry and will attempt to sabotage your business – steal trade secrets, erase data, bring down the network or otherwise use his/her soon-to-end “insider” status to harm you in retaliation.

The better option, if you can possibly afford it, is to make the layoff immediate but extend severance pay so that those employees will still have their usual income while looking for new jobs. If the employees have done a good job, you should also offer (don’t wait for them to ask) letters of recommendation and other assistance in procuring a new job. Handling layoffs in the most compassionate way possible will not only make the laid-off workers think more highly of the company, it will also influence the remaining workers’ outlook toward the company and its management.

Whatever you do, don’t “stagger” the layoffs. This might seem like the most cost-effective way when a substantial reduction in workforce is necessary, but wave after wave of layoffs creates a breeding ground of insecurity on the parts of those who are left each time and makes it difficult for them to concentrate on doing their jobs.

The good news is that sometimes it’s possible to downsize the company without anyone losing his/her job. In Part 2, we’ll look at ways to downsize costs without layoffs.

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