Layoffs: One Deep Cut Versus Lots of Little Cuts

There is a good conversation about the challenges of managing during tough times over at McKinsey.com where people are discussing the video, Good Boss, Bad Times, which is based on my current HBR article. There is an interesting and insightful comment by Wendy (and quite a few others too, I especially like the one by Alan Himmer) about the nuances of leading during tough times.  As I look at the comments, however, I realize that although videos are wonderful, they can't quite contain the nuances of an article.  And, in fact, Wendy makes an excellent point that, although I don't touch on it in the video, is something that comes up in the article, and is something I've been painfully aware of since doing a case of the collapse of Atari over 20 years.  As Wendy put it, 'try to make budgetary cuts in one fell swoop—it is better to cut too deep than to go back to the troops with more bad news. Incremental cuts only destroy employee confidence and leave them “stuck” with confusion and resentment.'

Wendy's advice dovetails with the argument in my article in that, to manage well during tough times, a good boss gives people as much predictability as possible -- and especially does everything he or she can to make clear when people are "safe" versus have reason to worry.  One of the worst things a boss or company can do is to make constant cuts at seemingly random intervals, as it causes people to live in a constant state of fear as they wait for the other shoe to fall.  As Wendy suggests, although a single deep cut is hell, it is a better alternative than wave after wave of smaller cuts.  Of course, things these days are unpredictable enough that what may seem like a deep and adequate cut today may later turn out to be inadequate,doing fewer and deeper cuts to the extent possible is a more effective strategy in the long-run.

Comments

[Murthy]

Hi Professor Sutton,

Very good insight - I'd just offer that I think the insight may not be as practical as one might think. If you look at any case of a company that did multiple layoffs, yes, in retrospect, the multi-layoff process caused a lot of collateral damage to morale and retention. But obviously the company did not intend at the beginning to have multiple layoffs.

It's not like any manager intentionally decides, "I know I gotta lay off 100 people this quarter, but ya know, I'm gonna whack 10 people every week, just to screw with morale."

At the time of layoff #1, the managers clearly didn't anticipate needing layoffs #2-N. They set the size of the layoff #1 based on their forecast for the business at the time. It just turned out to be an aggressive forecast, which is what triggered the future layoffs.

This goes back to the discussion a few weeks back about the guy who wrote an article about the morality of layoffs. The decision to lay off or how much lay off is a pretty mathematical decision. And as time goes on, the mathematical dynamics might suggest continued cuts.

The real ethics of layoffs is in how you conduct them, how employees are transitioned, etc.

[Greg]

The worst aspect of lots of cuts (layoffs) is the reverse-Darwinism that takes place. The strongest people leave because that can, the weakest stay because they can not.

The result is an organization with a much higher ratio of weak to strong workers, making it much less able to compete.

[Wally Bock]

The key to your advice and Wendy's is "during tough times, a good boss gives people as much predictability as possible." It's important when times are good, necessary when times are tough.