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Home » Opinion » Foreign Views
How to manage pain of laying off workers
March 10, 2009, Tuesday
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Print Edition
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US companies announced more than 240,000 layoffs in January, the highest total in seven years.
The picture in China is not especially happy, either. More than 20 million migrant workers across the country lost their jobs last year, as shrinking export orders led to the closure of low-value-added factories for goods such as toys and shoes, mainly in southern China.
Now, celebrated global brands in sectors such as consumer electronics and semiconductors are adding to the numbers of China's unemployed.
A January 2009 HR Monthly Watch report released by Hewitt Consulting, a global human resource company, indicates that companies in China are under significant pressure to control costs and scale back wherever possible, particularly in certain hard-hit industries such as the automobile, semi-conductor and electronics sectors. This is based on its study of 167 organizations.
To forestall mass layoffs, China's State Council issued a notice in early February, requiring companies to notify local labor authorities before any layoffs involving at least 20 employees or 10 percent of staff.
The decision to lay off workers comes with lasting effects. For starters, layoffs change the relationship with remaining employees, said Peter Cappelli, director of Wharton's Center for Human Resources, in a recent video lecture produced by the Financial Times.
"When the business picks up and the labor market gets tight," Cappelli said, "you probably can't expect they are going to have the same commitment to you. That's something worth thinking about."
Also worth thinking about is the long-term effect on the business itself.
"I think particularly in the US, there is a tendency to focus very much on the short-term quarterly performance numbers," Cappelli said. "But to think a little bit further out, what happens if the business picks up, and how long will it take us to rebuild the capability in the future?"
"The decision to lay off professional staff involves several trade-offs," said Wharton management professor Raffi Amit. "On one hand, boards of directors often encourage management to maintain profitability and control operating expenses (OPEX) when sales do not meet projections.
"Layoffs are one way to cut costs and align OPEX with realized sales revenue. Yet, on the other hand, short-term cost savings enabled through layoffs of productive, well-trained and loyal employees can damage the long-term competitiveness of the firm."
Kang Lan, a partner at Korn/Ferry Shanghai, a unit of the US executive search company, noted that in professional-services companies, middle-level managers are sometimes the first to be cut.
Although they are experienced, they are also expensive, and their jobs can be grudgingly shared by upper-or lower-level staff in tough times.
But when the economy gets better, she said, such managers will be the most difficult to find. In good times, she said, amid booming demand, these managers have greater flexibility, which allows them to adapt to different posts in different companies.
Workers who had grown accustomed to the last booming decade in China's urban areas have often been caught unprepared. Consider this blog entry from a Shanghai employee of a multinational auditing firm:
"The real horrible thing is the impact of these black-box layoff decisions on our psychology. No announcement of layoff ratio, no announcement of what criteria for the cut-off decisions to be made."
Wharton's Cappelli cautioned against such an approach:
"Bear in mind that when you do this, there is a big audience watching you, who are the survivors. The first thing is to do the (layoff) process as quickly as possible. Do not go back and do it two or three times.
"The next thing is when you decide who gets cut, it's easier for people to accept if performance appears to be the condition. The third thing is to offer people support as soon as possible. For example, give them information and guidance and counseling assistance, and better to have these in place even before you start layoffs."
(Reproduced with permission from Knowledge@Wharton, http://knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
The picture in China is not especially happy, either. More than 20 million migrant workers across the country lost their jobs last year, as shrinking export orders led to the closure of low-value-added factories for goods such as toys and shoes, mainly in southern China.
Now, celebrated global brands in sectors such as consumer electronics and semiconductors are adding to the numbers of China's unemployed.
A January 2009 HR Monthly Watch report released by Hewitt Consulting, a global human resource company, indicates that companies in China are under significant pressure to control costs and scale back wherever possible, particularly in certain hard-hit industries such as the automobile, semi-conductor and electronics sectors. This is based on its study of 167 organizations.
To forestall mass layoffs, China's State Council issued a notice in early February, requiring companies to notify local labor authorities before any layoffs involving at least 20 employees or 10 percent of staff.
The decision to lay off workers comes with lasting effects. For starters, layoffs change the relationship with remaining employees, said Peter Cappelli, director of Wharton's Center for Human Resources, in a recent video lecture produced by the Financial Times.
"When the business picks up and the labor market gets tight," Cappelli said, "you probably can't expect they are going to have the same commitment to you. That's something worth thinking about."
Also worth thinking about is the long-term effect on the business itself.
"I think particularly in the US, there is a tendency to focus very much on the short-term quarterly performance numbers," Cappelli said. "But to think a little bit further out, what happens if the business picks up, and how long will it take us to rebuild the capability in the future?"
"The decision to lay off professional staff involves several trade-offs," said Wharton management professor Raffi Amit. "On one hand, boards of directors often encourage management to maintain profitability and control operating expenses (OPEX) when sales do not meet projections.
"Layoffs are one way to cut costs and align OPEX with realized sales revenue. Yet, on the other hand, short-term cost savings enabled through layoffs of productive, well-trained and loyal employees can damage the long-term competitiveness of the firm."
Kang Lan, a partner at Korn/Ferry Shanghai, a unit of the US executive search company, noted that in professional-services companies, middle-level managers are sometimes the first to be cut.
Although they are experienced, they are also expensive, and their jobs can be grudgingly shared by upper-or lower-level staff in tough times.
But when the economy gets better, she said, such managers will be the most difficult to find. In good times, she said, amid booming demand, these managers have greater flexibility, which allows them to adapt to different posts in different companies.
Workers who had grown accustomed to the last booming decade in China's urban areas have often been caught unprepared. Consider this blog entry from a Shanghai employee of a multinational auditing firm:
"The real horrible thing is the impact of these black-box layoff decisions on our psychology. No announcement of layoff ratio, no announcement of what criteria for the cut-off decisions to be made."
Wharton's Cappelli cautioned against such an approach:
"Bear in mind that when you do this, there is a big audience watching you, who are the survivors. The first thing is to do the (layoff) process as quickly as possible. Do not go back and do it two or three times.
"The next thing is when you decide who gets cut, it's easier for people to accept if performance appears to be the condition. The third thing is to offer people support as soon as possible. For example, give them information and guidance and counseling assistance, and better to have these in place even before you start layoffs."
(Reproduced with permission from Knowledge@Wharton, http://knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.)
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