Considering alternatives to downsizing

I had the privilege of getting to know Eric Termuende, Director at of Geny Y Inc., last week. His company helps businesses to analyze, quantify, leverage and capitalize on organizational culture. I was immediately struck by Eric's passion, and in getting to know him, I can see why so many major brands are recognizing his efforts.

Considering alternatives to downsizing--

Eric Termuende and Chelsey Reschke

With December now upon us and Christmas around the corner, the holiday spirit isn't as strong as it was only a few short years ago. With thousands out of a job, and a province dealing with a decade of change (both politically and economically) in 2015, the workplace may feel a little colder, and it isn't because someone has left the window open. Now, arguably more than ever, workplace engagement, happiness and the mental health of our leaders needs to be second-to-none. 

It is no secret that Human Resources in Canada is viewed as a ‘cost centre’, much more than a ‘strategy centre’. This tends to warrant language like ‘spending’ as opposed to ‘investing’ when talking about the development of people. While some organizations are seeing the downturn as a time to layoff and cut, others are taking full advantage of slower times to invest in training and professional development; a very wise decision if the budget permits.

The cost of recruiting and training is no small expense. Using round, conservative numbers, the cost of bringing someone new into the workplace is about 1.25 times his or her base salary. This includes the cost of the desk space, lost productivity time, the learning curve the individual faces, and so on.

Let’s get to the scary part; the numbers:

Organization X has 1000 employees, of which 250 have been laid off. Now, when things turn around (and believe us, they eventually will), these people will have to be brought on again, and perhaps additional people as well. If the average salary in Alberta is ~$60,000, then the cost to bring these people back on could exceed $75,000 per individual, which means replacing the employee base is knocking on the door of $19 million.

An initial reaction is that if this downturn is going to last longer than a year, or maybe even two, and so the expenses are going to be much more than the cost of bringing on new people. Since our crystal ball broke, we aren’t going to attempt the prediction of how long we’ll be reeling from the low price of oil. What we will suggest though, are a few things:

1. Reduce the workweek to four days from five. This can obviously reduce expenses by 20%, but also provides a strong message to the employees that they are valued, that there are flexible solutions to achieving corporate goals to shrink budgets, but not always at the expense of damaging morale.
2.  Invest in training and professional development. As the market turns, having a skilled workforce will separate you from the competition and save you from the scramble to attract and retain top talent once the economy improves. Training does not always have to come in the form of external coursework and certification—why not utilize peer mentoring, cross-training and “one-up-one-down” meetings instead?
3. Appreciate the remaining workforce. As a manager or leader, showing consideration, genuine interest and providing opportunities for collaboration, and communication will contribute to elevated happiness. The best way to do that? Get to know your employees.
4. Cross-pollinate. The option to trade your available labour pool with sister companies is an absolute must-do. Firm X is facing a lean season, so they leverage their relationship with Firm Y, who is having a better year, to move their top talent for the season to Firm Y. Firm X is not paid for this labour, but they are ensuring their team members are receiving a paycheque at the same time they are reducing their bottom line. This is also an excellent opportunity to enhance the skill set of your company at no direct cost.

Failure to consider alternatives to downsizing may have disruptive effects including: reduction in energy, motivation and engagement both in the workplace and at home. There are profound psychological impacts of mass layoffs in an organization that diminish the net value of organizational cutbacks. If the goal is to lower overhead, remove redundancy, promote individualism and efficient decision-making, then you need to be aware that stressors, especially uncertainty and lack of direction, have the potential to undermine the financial gains created during the “leaning out” process.

 Let’s also discuss what happens when oil climbs above $50, $60, even $70 again. Thousands of people who haven’t found use for their transferable skill in another industry (frictional unemployment) will be doing all they can to put food on the table again. What this means is that there will be an incredible amount of applications for positions that may not be a good fit for the candidate. This ‘band-aid’ solution will be great to solve the short-term financial woes, but we’d predict a major turnover in the workplace again when the province becomes ‘comfortable’ again.And we’re not even getting into the “Millennial and future-of-work conversation” that would impact the future of the province and economy in general.

 Times are tough; there is no doubt about it. Discussing the tough times is an obvious conversation, but not always the most productive. Consider ways in which you can position your firm for future growth and ensure employees that remain in the workplace are valued, appreciated, and doing the best work possible. These people are the ones that are going to set the foundation for the year ahead.