Extract from David Parmenter’s  Working Guide: The hidden costs of reorganisations and downsizing

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:

  • redundancy payments
  • the halt in operations as everyone is scrambling to reapply for their jobs
  • the cost of the internal interviewing process both in downsizing and upsizing
  • the recruitment cost when upsizing
  • the unproductive time as new staff settle in
  • the training costs of new staff.

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 2-2.5 years.

In other words, if the turnaround is going to be within this period you would be a mug to downsize.

If the staff can tap into their unexploited entrepreneurial potential they might be able to find new revenue streams to help cover some of their salary costs and thus the breakeven could stretch to three years.  A period longer than the last two recessions mentioned.

EXHIBIT 2 Hidden Costs of Dismissing Staff

Honeywell case study

After the stock market crash in 2000, Honeywell laid off nearly 20% of its workforce and then struggled to recover in the downturn that followed. So when the Great Recession hit, in 2008, the company took a different approach, as Sandra J. Sucher and Shalene Gupta describe in their 2018 HBR article, Honeywell furloughed employees for one to five weeks, providing unpaid or partially compensated leaves, depending on local labour regulations. That saved an estimated 20,000 jobs. Honeywell emerged from the Great Recession in better shape than it did the 2000 recession in terms of sales, net income, and cash flow, despite the fact that the 2008 downturn was much more severe.

A Checklist to Put You off a Reorganization

Before you look at a reorganization, complete the checklist in Exhibit 1.

Exhibit 1 Reorganization Scorecard Checklist

Key Task Tick if covered
Have you done an evaluation of the potential downside? o Yes   o No
Have the senior managers got a convincing story to tell which will capture the minds and hearts of staff – without this staff become disillusioned very quickly and start turning away from the organization? o Yes   o No
Are all the following team players experienced in accurately assessing the full costs of the reorganization?
  • The Board/Ministers’ Office/Council
o Yes   o No
  • Senior management
o Yes   o No
  • Advisors you have used
o Yes   o No
Have all other alternatives to the re-organization been fully explored? o Yes   o No
Have you got a re-organization web page on the intranet site explaining the current status? o Yes   o No
For all those staff who have been identified as ‘surplus to requirements’, has a reality check been done to ascertain how many of them may be your company’s oracles? (those people who have much company history, knowledge, and wisdom) o Yes   o No
Have reasonable estimates been made for the following consultancy fees?


  • New organization logo, if necessary
o Yes   o No
  • New letterhead and signage and stationary, if necessary
o Yes   o No
  • Public relations and culture change advice
o Yes   o No
  • Recruiting costs for new positions
o Yes   o No
Have reasonable estimates been made for temporary staff, redundancy pay, and contractors? o Yes   o No
Have reasonable estimates been made for legal costs — which can be significant if the change process isn’t done well? o Yes   o No
Are you prepared to have key projects grind to a halt as staff lose interest, leave, or are diverted on re-organization exercises? o Yes   o No
Have you allowed for lower productivity in the next 18 months as the dust settles?  (Think of the lost time due to most managers reapplying for their own positions, endless re-organization meetings, etc.) o Yes   o No
Have you held discussions with all key employees to ensure that the reorganization will not disenfranchise them? o Yes   o No
Have you scheduled in team building exercises, as the re-organization will have created some disharmony amongst managers as they jockey for position? o Yes   o No
Have all property related costs been fully accounted for?  (Subletting surplus office accommodation takes much longer than the leasing agent would lead you to believe). o Yes   o No
Have you discussed the proposed re-organization with two or more of your contacts from other organizations who have completed a reorganization within the last two or so years? o Yes   o No
Have you created a checklist on all changed IT requirements? o Yes   o No
Have you organized any enticements for your staff members to help make them stay on?  (They are going to be suffering in this re-organization). o Yes   o No
Have your organized training for all staff undertaking new roles? o Yes   o No
Have you updated the website for the new structure? o Yes   o No
Have you created press releases for publications and letters to stake holders, contractors, suppliers, and customers? o Yes   o No
Have you developed a training program to help managers during the recruitment process? o Yes   o No
Have you estimated the time and cost of unfair dismissal cases? o Yes   o No
Are you prepared to create havoc in some of your staff members’ lives? (A re-organization is going to create a lot of destruction of staff family life as the immediate future may seem insecure.). o Yes   o No
Have you planned to have ‘events’ which will put some fun back in the workplace? o Yes   o No