- In tough economic times, organizations often jump to lay off workers, which we just experienced in 2022 and onward.
- Finding top talent is tough, especially in highly competitive industries that need technical or specialized talent. Before jumping to layoffs, organizational and talent leaders should first look at skills.
- By analyzing your skills data first, you’ll have a better outlook of what talent you have, what you need, and how to potentially redeploy people before letting them go.
As layoffs continue to populate news feeds, it may seem like the economic outlook is still bleak, with organizations needing to cut costs to what’s absolutely necessary in preparation for a recession. But this isn’t necessarily true, and layoffs may not only be unnecessary but may work strongly against efforts to prepare for what’s next.
If a recession means two consecutive quarters of negative GDP growth, there was a recession in the first half of 2022. But GDP growth has recovered and there’s talk that the Fed’s series of rate hikes will ultimately lead back into a recession, but the expected date has repeatedly been pushed back. Some experts are now saying it won’t happen at all.
In this ambiguous climate, it seems that business leaders are continuing to enact or at least consider layoffs to quickly slash costs. This itself could be a costly mistake. Most executives don’t understand the vast skills of their people, and with the ongoing pressure of layoffs, they may choose a devastating route that will be difficult to come back from.
Studies show that short-term cost savings of a layoff are overshadowed by bad publicity, loss of knowledge, weakened engagement, high voluntary turnover, and lower innovation — all severe long-term consequences for organizations in the long run.
There’s also a multiplier effect, when high performers leave, more high performers follow. Layoffs tend to correlate with the highest rate of voluntary departures — watching colleagues lose their jobs despite their excellence makes other top performers start looking at options.
Trust is difficult to recover, and so is lost revenue. Other research has shown that layoffs do not generally offer immediate financial improvements which can even disadvantage organizations against their competitors so much that it can take years to pull even.
Related content: Skills-based talent planning isn’t a mystery. Start turning the art of talent planning into a science with Aptitude Research’s latest paper, Demystifying talent intelligence: Unlocking the potential with skills & AI.
Layoffs have serious workplace equity consequences
In 2020, amid the pandemic and calls for racial justice, many organizations pledged to take care of their people and use their resources to fight inequality in their workforces and beyond. Access to diversity, equity and inclusion (DEI) programs surged from 29 percent in 2019 to 39 percent in 2020, peaking at 43 percent in 2021, according to Glassdoor benefit reviews. But in 2022 they started to dip again, and layoffs have reversed many earlier gains — partly because DEI leaders are leaving or being laid off from their teams.
Current layoffs are disproportionately impacting marginalized groups and could be even more harmful in the long run if women and Black, Indigenous and people of color leave certain sectors altogether. Beyond the inherent value of DEI, this also hurts the bottom line. IBM found that organizations identified as gender-equity leaders reported 19% higher revenue growth than others in their sample.
Technology can support better options
Layoffs, especially in tech, are often attributed to excessive growth in need of “right-sizing.” However, business leaders rarely take the time to truly evaluate future needs and the skills needed to meet them. Cuts often seem arbitrary with a prime objective of reducing numbers, and the remaining gaps impact how the entire organization is able or unable to operate.
Taking a skills-based approach to resource management might be a heavy lift, but with advances in AI, it’s more manageable than ever, and the gains of doing so can far surpass the short-term savings of mass layoffs.
Here are three steps for business leaders facing potential layoffs:
1. Identify the core problems facing the business
Don’t make the leap from “growth has slowed” to mass layoffs without collecting and analyzing data to quantify the factors contributing to the slowdown. For example, maybe one factor isn’t that the marketing team is bloated, but that there aren’t enough data analysts to help direct and refine spend. Maybe great engineers who were moved into management need new skills to direct their teams better, or you have amazing would-be managers who are overlooked. Uncertainty can’t be solved with more uncertainty, making the hard case for which skills are needed and where.
2. Design a cross-functional solution and find the skills you need
Smart workforce planning involves every part of your organization. Cross-functional collaboration is critical to any business, and any interdisciplinary team needs to have a certain range of skills to move together toward business objectives. Those skills, however, may not always be associated with the roles you think they are. Perhaps the best person to lead communications with stakeholders isn’t the person you think it is based on their role.
3. Refine org charts and job descriptions
If you’re faced with the assumption that too many people are performing the same functions, adjust around needed skills rather than automatically cutting a department’s head count. For example, in a mergers and acquisition scenario, it’s better to understand which skill sets are duplicated, rather than immediately cutting one of two people with the same title. If they have complementary skills that you’ve identified are necessary, you can look to reassign someone to where they’re needed most.
Layoffs may seem like a quick solution that represents financial responsibility, but these can be devastating to your operations, your employees, and the larger economy that you’re trying to navigate. In addition to doing the right thing, thoughtful leaders can pursue solutions to their biggest financial worries that protect both people and businesses.
Sania Khan is the former Chief Economist at Eightfold AI and author of the book Think Like an Economist. She previously worked for the U.S. Bureau of Labor Statistics.
This article originally appeared on Inc. in October.
