Layoffs are not a long-term answer for companies when faced with tough times. Nine Eleven and the Great Recession tested companies with no-layoff policies. Southwest Airlines, Marriott, FedEx, Honeywell, Toyota, to name a few, passed the test. I should add that I mean permanent employees in non-seasonal businesses. Here’s a comment from a Southwest Airlines employee:

“Never in my 13 years [at the company] I felt like my job was in jeopardy because of the economy, “said Jill Kronman, a flight attendant for Southwest Airlines.

Layoffs versus layoffs

Do leaves work better than layoffs? The Harvard Business Review May-June 2018 article, Layoffs that do not break your company, gives an idea. It shows that layoffs destroy long-term value. They not only destroy value, they destroy lives. Honeywell’s experience in the Great Recession supports this view. Here are the comments from its CEO:

As my leadership team began looking for options, we kept coming back to the idea of ​​leave: Workers take unpaid leave but remain employed. The conventional wisdom is that because permissions they spread the pain across the workforce, they hurt everyone’s morale, loyalty and retention, so it would be better to fire a smaller number, focusing on the weak performers … The process was not perfect [but] All in all, our decision to use licenses instead of layoffs was a success.

Permits show care for employees

Layoffs drain talent from companies. And it takes time and money to rebuild. When a leader says his company is in a “financial crisis,” what does that mean? It’s a euphemism for problems with operations, demand, the economy, etc., because finance is never the problem. So if the CEO looks for the solution in finance instead of what is behind the numbers, the CEO will make a bad decision in the long run that will hurt the company. One of the dumbest responses is to lay off a percentage of the staff in each department. It’s a simplistic, misguided, and lazy way to destroy long-term value. Some departments may need more people to have sixteen opportunities to post a recession!

In the face of falling revenue, running out of cash, and rising costs, what should a business do? During the Great Recession, Bob Chapman, CEO of Barry-Wehmiller, opted for leave, not layoffs. In his book Everyone matters, the extraordinary power to care for your people like family, Chapman and Raj Sisodia state: In a family, when times get tough, no one is fired, but instead seeks solutions to resolve the crisis. After the permits, Chapman noted that the permits shared the sacrifice but, in the end, it didn’t seem like a big sacrifice. In fact, the three years following the licenses were record years. To acknowledge what their team members gave up, the company reinstated the 401K match and then “returned” the lost funds to them if the company had not suspended the match.

Permits help maintain talent, build a culture of solidarity, raise morale, and are more profitable in the long run. But this approach needs a long-term vision. In addition, the company must value and invest in its workers. When a company keeps its employees and treats them well, it will benefit. That is one of the reasons why family businesses perform better than non-family businesses. A 2018 study alluded to the long-term vision adopted by family businesses in their decision-making. For example, these companies reinvest a higher percentage of funds rather than buy back stocks as short-term focused companies.

Manage cost units, not costs

When a company believes that its costs are too high, the first approach should be to look at its mission and strategy and compare them with its activities. Are we doing what we should do? Companies must understand where they are, what they are doing, before deciding to adjust their activities. Costs are never problems, but symptoms. They show the score!

Managers and leaders handle the wrong things. They try to manage costs; but nobody can manage the costs. I repeat: the costs represent the score as in a hockey or soccer game. We must isolate cost drivers and manage them, such as the energy contract and energy consumption, not total energy costs. “Cost cutting” and “downsizing” are reckless and wasteful exercises, as the Harvard article shows.

People work on activities. Deleting people does not delete their jobs. That takes away skills, talents, and experience, but the projects and other things necessary to carry out the mission remain. When the company faces challenges, it must evaluate the projects and activities necessary for the mission and define its resource needs in people and money. This reassessment should lead to a better understanding of whether the company has drifted away from its mission and how it should return. To deal with the glut, the company can combine licensing, hiring freezes, retraining, and reorientation.

Before a leader decides to fire his staff, he should ask himself: Why do I have too many people? Often times, the answer lies in poor (or no) decision-making, short-term focus, poor growth, overinvestment, mission drift, and / or lack of focus. Leaders need to look long term and understand business cycles between peaks and troughs. In good times, they must match growth with long-term resource capacity (people and finances). That’s the Jim Collins 20-mile walk. In addition, the leader must ask himself if the company has the right people in the right places. Are they cooperating and working on the mission? This analysis will identify the problem that layoffs will not solve.

Will companies continue with their no-layoff policy during this pandemic? Those are the million dollar questions. I hope that many companies do not stick to layoffs because that is the best approach to the long-term viability of the company. And this is how to manage in the long term to create value for the company!