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Talent Hoarding – Can Reduce The Huge Hidden Costs Of Layoffs (A surgical approach for identifying those to be released)

By | Dr John Sullivan |

Shareholders should be outraged when their execs use broad layoffs, which have a painfully low ROI. In fact, along with M&A actions, a large-scale layoff may have the most disruptive business impacts of all talent actions. So as an alternative, I recommend a “gradual and surgical release” alternative approach, which can reduce labor costs without disrupting workforce productivity.

You might not be surprised to learn that some already see it as silly. When companies purposely release large numbers of hard-fought over, trained talent that you might not be able to replace when you need them again? Unfortunately, the use of broad layoffs is widespread. Partly because most executives are unaware that the salary savings from each laid-off employee (the actual process goal) won’t likely even cover the large severance and outplacement costs for each released worker. Executives are often uninformed about the many negative costly impacts that occur as a result of being short-staffed after a large-scale layoff. This sudden disruption will directly impact team productivity, retention, and morale. Finally, when calculating the “real total costs” of layoffs. Be sure to include the fact that the actual layoff announcement alone will likely damage your external employer brand image for years. And exacerbate your already record-breaking retention problems among the remaining employees. 

The Process Won’t Improve Until Executives Know The Hidden Costs Of Traditional Broad Layoffs 

In almost all cases, you are likely to release too many and the wrong employees. Work with the COO and CFO in order to calculate the actual total cost of a traditional broad layoff. The frequently under-calculated layoff costs that must be included in a compelling business case are listed below.

  • Business impact costs – it’s naïve if you fail to realize that to start off, your productivity and product development will suffer during this period of turmoil. In addition, your customers will certainly notice, and many will become concerned. And that may cause your competitors to double their efforts to take away those customers. Realize that the layoff process negatively impacts revenue-generating and revenue impact jobs, and your organization’s overall revenue will suffer. Next, large-scale layoffs will also increase your unemployment insurance costs. Remember to calculate the wasted employee development costs that walked out the door with your released employees. In addition, the costs of the many lost ideas and secrets that your departing employees may take with them to a competitor firm.

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