Sackings can cost businesses more: study
Article extracted from Perth Now
Grahame Armstrong | April 9, 2009
COMPANIES laying off workers to survive the recession should think again - redundancy is a flawed strategy that ultimately costs more, a new study shows.
The new study from the Australian Centre for Retail Studies found redundancies can cause “lasting damage” to businesses and create an environment where even the most trusted senior staff quit their jobs.The report also argues a reduction in the workforce does not translate into improved performance and profits.
The centre is part of Monash University’s Business and Economics Faculty.
Downsizing causes poor morale and loss of trust in management, the result being “survivor syndrome”, a term used to describe what happens when the firm’s best employees quit.
It was better to hold onto staff and plan for the inevitable economic recovery.
The direct cost of redundancies cancelled out any financial benefit for the firm if new employees were hired within 6-12 months.
The study, carried out by ACRS Research Fellow Dr Sean Sands, found that some organisations often see staff as commodities, like paper clips or light bulbs that can be plugged in and out when no needed.
“While redundancies may seem like a good way to cut costs in the short-term, the direct and indirect costs of downsizing can paralyse your company’s long-term revenue generating streams,” Dr Sands said.
“There are alternatives that can work in favour of the organisation.
"Companies should consider pay cuts, reduced benefits, unpaid leave or incentives for voluntary departure as an alternative to redundancy.
“Difficult times can be used to strengthen a company.
"If redundancies are required, leaders must become transparent, accept responsibility, over communicate and express compassion and empathy.
"People want to feel a sense of belonging and control over their future.”
Dr Sands said workplace trust was crucial in an economic downturn, and a climate of trust worked both ways.
“Employees appreciate and respond to empowerment and opportunities to learn and contribute, particularly in hard times,” he said.
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