Layoffs - The Result of Management Failure

Layoffs are a failure of management
Layoffs are a failure of management

Great leaders don't need wholesale layoffs

The US economy continues to underperform every post recessionary period in modern history. By nearly every measure, we should be doing much better than we are, and yet we continue to muddle along with incredibly high unemployment, stagnant wages, and over 88 Million people who are out of the workforce. Clearly, things are not going as well as they should. With all this in mind, it is fairly easy to understand why businesses continue to lay off workers as they restructure around a relatively stagnant economy. Frankly, business leaders are simply doing what they must to keep their businesses profitable and keep those remaining workers employed.

That said, layoffs are by definition the result of poor management leadership. Of course most mangers will claim that they are not to be blamed for economic conditions that predicate their staff reductions, but that is the excuse of a failed planner. To be clear, there are varying degrees of mismanagement. For example, a company the layoffs a small group as a result of lost business is very different than a company that reduces staff by 20% in a major restructure. However, this is only a difference of degrees, in both cases, management is still to blame. This is not an anti-capitalist jab at the bourgeoisie, but a critical analysis of management failure from an extremely pro-capitalist voice. Further, This is not an indictment of the necessity to reduce staff when the business requires these steps must be taken. Instead, it is an understanding that there must be a series of management failures that occur leading to that moment of necessity.

Labor is a Resource

To best understand why I believe layoffs to be a failure of management, it is best to think of labor as a resource like any other. With that in mind, the prudent manager would manage the resource of labor with the same vigor as any other business input. Consider, for example, capacity planning in a factory. A truly great manager would tightly forecast his or her needs into the foreseeable future and would then manage the materials and throughout of this current system. Rather than build a new production line to support increased capacity, she would stretch the capacity limits before ever considering adding a new line. Management should always view labor in the same way. For each new employee, you have layered in incremental expenses that must ultimately be justified with increased demand for that labor.

Prudent management would dictate that those decisions are taken with after very measured analysis and with an understanding of the increased risks associated with that incremental expense. Executives should always be looking to the future when thinking through hiring decisions.

Case in Point

As an example, Yahoo recently announced layoffs of 2,000 employees. Clearly Yahoo’s performance dictates that this action be taken, but think of the failure associated with this action. Yahoo has for years been limping along as compared to Google. Knowing that they had performance problems relative to their marketplace, management should have been working to appropriately size the company over the past few years. First, they should have always used attrition to reduce the size of the company over that time. As employees exited, they should have rebalanced the work and provided opportunities to the remaining staff to accept additional responsibility. Secondly, they should have been managing their poorest performing employees out as a matter of regular business, give the declining performance of the company. There should have been a constant attempt by management to reduce the size while improving the per capita talent level. Much like GE (like it or not) Yahoo should have been managing out there poor performers as a matter of course, rather than as an act of desperation. Further, by establish clear rules for performance and clear recourse for the lack thereof, employees would begin to clearly understand what is expected, and Yahoo would have likely seen productivity improvements. Further, as the workforce was managed to the proper size, employees would begin to understand that their great ideas and hard work would ultimately provide for greater opportunity. By managing the workforce as a matter of course, the company would have created a virtuous cycle of an ever more talented staff that sees personal benefits in giving it their all.

Conclusion

Clearly, this is not always easy, as we see in company after company, but the reality is that an aggressive approach to managing talent, and the lack thereof, ultimately makes for a much stronger company with clear expectations, and helps to ensure that large, wholesale layoff are never needed. It takes bold leadership, but shouldn’t that be the expectation for our leaders.

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