Overcome business downfall without employee layoff

Business environments have never been stable and no matter what; they tend to stay like this in the future too. Change is said to be the only constant one can think of in a business. As situation worsens, be it an economic slowdown or individual business’s downfall, a situation of potential buy-out or even the closure of business in part; it becomes a critical strategic matter calling for urgent attention. One of the most common strategic behaviors witnessed during such times is massive employee layoffs (Gallo, 2013). Giant organizations often start finding solutions into cutting the manpower costs. But with the emergence of human resources as an asset of the organization, is it still the right corporate behavior?

What other organizations learned from employee layoff

During a business downfall, managers panic and look around for short-term solutions. Employee layoff is among the most common solution to cutting costs, especially during times when they are facing financial losses. However, employee layoff should be avoided as far as possible to prevent negative word of mouth publicity (ASC, 1996). Such news often comprises the headlines and becomes a public affair which eventually affects the value of stocks.

Many organizations avoid employee layoff and try to overcome business downfall by offering severance pay and outplacement services. These can be said the compensation to employees for their untimely loss of employment. This may minimize the negative publicity to some extent but the other side of this strategy is an increase in costs: costs in the form of severance pay and outplacement services. At the time, when focus is laid upon cutting costs, it adds significantly to the costs. Hence this is another reason why employees should be retained during such times (Cote, 2013).

Yet another reason relates to the costs of hiring new employees over course of time when situations turns to favor. As said earlier, business environments are very volatile. During the course of time, when situation improves and businesses plan to expand, they again feel the need of experienced manpower. This leads to unnecessary costs of advertising, hiring and training (Bersin, 2013).

Avoiding employee layoff

Now the question that follows is how to manage performing and non performing employees during times of business downfall? Well, there can be lot many productive solutions to this question; the only need is to think outside the box. Following has helped organizations in the past to overcome such situations:

  • The customer service staff those having a direct interaction with the customers can be put into the job of conducting market surveys and bringing into knowledge the factors that had probably led to this downfall. These people can best secure the feedback of the customers as they have fair idea of customer reactions.
  • A few employees from all departments can be chosen for providing necessary background data for carrying out research and development and bringing innovations into the organization. Successful innovations often result from team work and a comprehensive approach towards exploring the unexplored.
  • Besides, instead of firing people from the jobs, modifying the compensation structure may lead to be a better solution. Performance-based pays and higher incentives can work out in such situations. This will not only reduce the firm’s financial liability but also act as a source of motivation to the employees.
  • In cases where organizations who operate in multiple different businesses, the employees can be transferred internally to other businesses too.

The management must give a second thought before deciding on employee layoff, as there can be better solutions to cut costs. Human resources are the vital success element in contemporary business environment hence any decision relating to them must be taken in favor of them.


  • ASC. (1996). “Special Report: Train after Layoffs!” Accessed on: April 24, 2014. Retrieved from: http://aescir.net/com/am_train.htm
  • Bersin, J. (2013). “Employee Retention Now A Big Issue: Why The Tide has Turned.” LinkedIn.
  • Cote, D. (June, 2013). “Honeywell’s CEO on How He Avoided Layoffs.” Harvard Business Review.
  • Gallo, A. (November 26, 2013). “Managing People on a Sinking Ship.” Harvard Business Review.

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.

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