CEO and Co-Founder of TrenData, a leading provider of people analytics software.
Whenever the economy hits a rough patch, business leaders’ first reflex tends to be cutting costs. At most organizations, the largest fixed cost is payroll, which can account for as much as 70% in a typical corporation, according to compensation provider Paycor. Not only is the decision to let people go a difficult one, but it’s also something management must consider in terms of long-term loss versus a short-term gain to the bottom line. That’s because in many cases, workforce reductions can cause a great deal of indirect damage to an organization.
Below are three often overlooked, but very common, side effects that many organizations have had to deal with following a layoff.
- Impact On Remaining Employees: According to a study done by the University of South Carolina, the average effect of downsizing a workforce by just 1% leads to an increase of 31% in voluntary turnover the following year. Widespread layoffs can weaken morale and cause employees to feel as if they have lost control.
- Decline In The Organization’s Brand Equity And Sales: According to an international study conducted by the American Marketing Association, sales for organizations that conducted a widespread layoff were 8.7% lower following the announcement of such than forecasts previously predicted.
- Challenges Ramping Back Up: Organizations that administer quick, large-scale layoffs are often unprepared to meet demand when conditions improve, particularly if the economy snaps back quickly.
Before management makes any crucial workforce decisions, particularly ones with high human costs such as terminating employees, actionable, data-driven insights are essential. Organizations have an abundance of people data, and business leaders need the tools to extract useful insights from those datasets. With the right people analytics software or in-house systems, managers can leverage organizational data to inform crucial decisions by better understanding the business today, and the impact possible changes could have tomorrow.
Here are some key areas to examine:
- Identify Top Talent: Organizations need to know who the best performing workers are across all parts of the business, even if those workers are in a poorly performing department or division. High performers can typically excel in many areas outside their immediate disciplines, making them valuable in a multitude of different positions. Also, high performers tend to increase the performance of their peers, as noted by a study done by the Kellogg School of Management. A people analytics solution can greatly aid management by visualizing and identifying high performance quickly so as to ensure they can be utilized in the best manner.
- Identify High-Performing Departments: One upside to a recession is that it typically spurs business leaders to focus on its best-performing products and services. Shifting talent from declining to growing business areas can greatly help decrease hiring and training costs, which can be considerable. According to a recent survey from software recruiting firm Jobvite, 30% of new employees quit within 90 days. A people analytics solution can help avoid these high costs and turnover risks by helping reallocate talented employees who know the company and its processes to where they can create the most value.
- Predict Future Shifts: While each downturn is likely to have its unique characteristics, economic cycles tend to be repetitive. Human resources and finance departments are rich with historical data, and successful organizations use this history to identify analytical trends to predict what might be coming next. Honeywell laid off 20% of its workforce during the crash of 2000 and struggled for years to recover. But the organization learned from its mistakes, and when the great recession of 2008 hit, the company saved 20,000 jobs — and possibly the company — by providing short term furloughs and mostly keeping its workforce intact. In the decade that followed, the company nearly doubled its revenues. A people analytics solutions can not only use past workforce movement and shifts to predict what’s coming next but can also enable modeling that allows business leaders to understand the impact of different approaches.
If one believes employees are an organization’s most valuable asset, then strategically using that asset can not only help an organization survive a downturn — it will also help it thrive. Putting the right people in the right jobs for the right purpose is the key to business success, and a powerful people analytics solution, whether purchased or built in house, can provide insights and direction to allow just that.