March 2018
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Geoff Colvin on the hidden costs of cutting staff

Geoff Colvin has written an excellent article on the hidden costs of cutting staff.


A lot of experts are advising firms to cut staff in the downturn. Cut early and cut deep, the advice goes, to avoid have to cut more later, especially in repeated rounds of cutbacks. If it applies to your organization, then the advice may be sound. If your firm can avoid cuts, however, it may be wise to hold on to your staff, even if they currently do not have a lot to do. Cutting staff is not without costs. It is hard on the people being laid off, it is hard on the people doing the laying off, and it can be hard on your organization’s bottom line. Layoffs have several, often hidden, costs. Colvin identifies them as:

Brand equity costs – Remember how hard it was to hire qualified staff a year ago?

Leadership costs - The firm’s next leader may be the person you are laying off today.

Morale costs – This is getting more attention today than in previous downturns, but the effect is still significant.

Wall Street costs – What signal are you sending the outside world?

Rehiring costs – Remember how hard it was to hire qualified staff a year ago?

Remember, many firms that are cutting back are using the economic downturn to cover up for earlier strategic mistakes. They know there are costs to cutting staff and are blaming the global economy for the price of their poor decisions. The decision to cut staff should be based on an analysis the benefits – and the costs – of laying off the staff you spent so much effort to acquire.

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