Contrary to common advice do not act quickly to remove staff as you probably don’t know enough at the moment.  The companies that emerged from the 2007-08 crisis in the strongest shape relied less on layoffs to cut costs and leaned more on operational improvements. That’s because layoffs aren’t just harmful to workers; they’re costly for companies with a whole raft of costs including:

  1. redundancy payments (these only amount to 10-15% of total costs)
  2. the halt in operations as everyone is scrambling to reapply for their jobs and managers are involved in interviewing (these costs can be as much as 60-70% of total costs)
  3. loss of key staff in the third and fourth tier management ranks due to disillusionment and the redundancy offer as they know they are good enough to go straight into employment elsewhere
  4. ex- employees now coming back as expensive contractors.
  5. culture change and communication consultants’ fees.
  6. the cost of the internal interviewing process in upsizing
  7. if the reorganisation involves a name change you have the additional costs of designing a new logo, letterhead, signage and stationery.
  8. the recruitment cost when upsizing especially recruiting agencies, advertising etc
  9. the unproductive time as new staff settle in
  10. the training costs of new staff

In addition to the above costs you can add

  • unwinding of the property leases that may become surplus can take up to 24 to 36 months until the organization is released from its prior commitment.
  • Dysfunctional management teams. A reorganization can leave you with the also – rans, and the vultures (those nasty individuals busily burying hatchets in all those around).

By my calculations (see Exhibit 2), an organization with 500 full – time employees that is contemplating dismissing between 50 and 70 staff members would be no worse off if the staff members were kept on and redeployed, where possible, for up to 2.25 -2.5 years.

Visit David Parmenter’s Working guide: The Hidden Costs of Reorganizations and Downsizing for more details