Are Redundancies Really The Right Decision?

Posted by Robin at 5:17 PM on Oct 8, 2015

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Anyone that has been on the receiving end of redundancy knows that, with few exceptions, it is a painful affair. People’s lives are thrown into upheaval and uncertainty creating untold stress on both them and their families. That damage sometimes lasts for years, sometimes it lasts a lifetime.

It’s just not nice.

It also happens to be the worst part of my job. Yes, I know it’s bread and butter HR but that doesn’t make it pleasant or easy and I never look forward to it. That being said it has to happen sometimes but, perhaps, maybe not as often as it does actually happen.

Certainly for most small businesses redundancy is seldom practiced but, when it is, it is a deeply felt affair. The increased degree of feeling for all the people involved whether you are the person losing their job, the manager giving the message or, simply, the people who work alongside the redundant employee, is more than likely a factor of your relative closeness – you’ve worked in the same small space for many years and, to all intents and purposes, these people have become like extended members of the family to you. It is nearly always going to hurt.

In contrast, for many large organisations, frequent exposure to the risk of redundancy has become a way of life for many of their employees. I know of several large organisations where it would almost be considered unusual if your role wasn’t place at risk of redundancy in any 3-year period. This degree of exposure does change attitudes to both the giving and receiving of the ‘sorry, we no longer need you’ message that accompanies the process but when the risk does eventually turn into reality the outcome is no less devastating.

It also critical to be aware that the numbness that comes from regular exposure to such actions is not good for employee morale – or engagement as we know it in our modern HR parlance. Constantly living under the cosh doesn’t inspire much in the way of greatness – it is more likely to lead to mediocrity or, much worse, stress related illnesses that significantly increase workplace absence.

For both small and large employers alike the driving factor behind the majority of redundancies is cutting costs. Costs that either need to be cut because the very survival of the organisation is at risk or because higher levels of efficiency are demanded by the market/the government/the local authority* (delete as appropriate).

It seems to be an unavoidable situation. What choice do you have?

Whilst I certainly can’t guarantee it, there may be some other options out there that will help you avoid redundancies.

Will Redundancies Actually Support your Long-Term Success?

This may seem like a daft question since you’ve already done your due diligence and you wouldn’t be knowingly damaging people’s lives if you didn’t have to.

But, are you sure that making redundancies will really help your organisation in the short, medium or long term???

Cost Efficiency for Cost Efficiency’s Sake

Certainly in many organisations, a significant proportion of redundancies are driven by the need for cost leadership. Who can argue with that?

It’s true that the mantra of cost efficiency for cost efficiency’s sake has been a part of company lore for many years now but it’s hitherto unquestioned existence as a business strategy in it’s own right may be changing with it moving towards becoming an Old Wives' Tale in the not too distant future.

A fabulous article was shared last year by the Chartered Management Institute ‘Management Articles of the Year’ publication. The article, titled (in true Ronseal fashion) ‘The Fatal Bias: the prevailing managerial bias towards cost efficiency is seriously harmful to corporate performance’ and written by Dr Jules Goddard of London Business School, explains with great clarity that in itself, simply cutting costs because it’s an accepted, unarguable doctrine of good business is actually more often than not damaging profitability. You can read the article for yourself here (amongst some other very good reading) - CMI Winning Ideas 2014.

Fundamentally, Dr Goddard tells us that ‘very rarely is cost leadership a driver of superior profitability’ and ‘[cost competiveness] is invariably a losing strategy’. That’s not to say that it doesn’t make sense to keep costs as low as you (fairly) can but it should not form the be all and end all of your business strategy.

Too often, decisions to make people redundant are taken on the sole basis of ‘we need to save X% of cost.’ Unless, within this context, the strategic goals of the company and (you would hope) the aspects of the products and services that your current and future customer’s will value are protected then that cost cutting exercise could end up costing you more dearly than you might expect.

So, maybe the question needs to be something different, like: ‘Will cutting these costs (people!) maintain the value that our current and future customers cherish?’

Sometimes Attack is the Best form of Defence

Very often, we arrive at this juncture as a consequence of a crisis. It could be that a big new competitor has moved into the your market taking away half of your business. How we might respond to these events will clearly impact on the future success of the organisation but it doesn’t always make sense to take a defensive posture by aggressively cutting costs.

A reduction in the level of business you are doing is, naturally, a great concern for the future of your business. If that reduction is due to increased competition (which is inevitable when other people see how viable your money making model is) then do you respond by cutting costs and graciously accepting your smaller share of the pie or do you respond by doing what you can to protect your market share?

Protecting your market position will mean redefining or reasserting your value over your competitors. How you do that will depend on the opportunities of your market place and the skills, experience, creativity and commitment you have at your disposal, i.e. your workforce.

Unfortunately, reducing the size of your workforce will inevitably decrease your capacity to defend your market share and, sadly, this is the way many businesses eventually decline.

And remember that, once upon time, someone had a brave idea that started your business. Someone took a risk. That same risk-taking attitude is what is required at this point if the long-term success of your business is to be protected.

Are Redundancies the Best Way to Cut Costs?

The other kind of familiar crisis is when the economy goes into meltdown. Often, although not always, downturns mean that the pie that you took your share from has now got a bit (or a lot) smaller. The nature and potential permanence of this crisis is therefore of very high significance in your decision making process.

As with all downturns (we’ve had so far) an upturn will eventually arrive so the important thing is to ensure your survival in the short term but also to do what you can to be ready to start growing again or even push for a bigger share of the market when those green shoots start to reappear.

When thinking about protecting your business’s long-term aspirations it is critical to realise what your people mean to your business before you decide to let them go. It might be a bit of a cliché but your people are your business. We all know that they turn the wheels that make your customers happy but sometimes we don’t recognise that they are also our engines of growth. They find solutions to the day-to-day challenges, they find new markets for your company to grow into, they bring fresh ideas how about to out-compete the competition.

So when one of them walks (or is pushed) out of the door they stop realising all that value for your business as well as taking with them all that investment you have made in them over the years. And worse, they may even take it across the road to one of your competitors.

Add to that the cost of a potential downturn in morale with your remaining staff (survivor guilt and poor morale are well documented impacts to employees that didn’t get made redundant but were close to those that did) and you can start to appreciate that, aside from the human impact to the people being made redundant, such decisions come with much wider costs.

Knowing the significance of these wider costs helps us when it comes to considering redundancies against other potential options that might prove more fruitful to your longer-term success. Protecting that vital asset in the short term may be the best solution for your organisation’s long term success.

Redundancy Alternatives

So what choices do you have? Before you make the decision that redundancies are really necessary have a careful think about some of the following options:

Retrain your employees. Very often businesses let people go at the same time as having open vacancies in other areas. In the UK, the requirement to offer employees at risk of redundancy ‘suitable alternative’ employment is enshrined in law but it only really works in the most obvious of skill matches. Sometimes it may make a lot of sense to look at investing in some of those bigger skill jumps especially if it means retaining valuable company knowledge and maintaining good morale in the workplace.

Consider reduced working hours across your workforce. Especially where the crisis driving the redundancies may be of a reasonably temporary nature, protecting your wider workforce by sharing the reduction in work available could help protect morale and, crucially, save you very significant costs when the situation improves so that you don’t have to rehire and retrain people.

Consider temporary lay-offs. These aren’t used very often these days but they are still a feature of many employment contracts. Even if they are not in your contracts such an approach could prove more attractive to your employees than the permanent loss of their jobs.

Another variation of the temporary lay-off may be the unpaid sabbatical. This would involve employees taking small career breaks, possibly to pursue life goals.

Look at other cost-cutting measures such as temporary benefits reductions or tighter expense management – the list goes on.

Some Golden Rules for Avoiding Redundancies

Before you get anyone near redundancies:

Keep an eye on your market so that you can better anticipate and therefore adapt to change

Help your people adapt to new technologies and new market requirements by investing in their personal growth – people are motivated by personal growth, you win and they win.

And if you do think you might need to make redundancies think of the following:

Getting staff involved in what to do in the event of a crisis before you make a decision will help people to understand why action needs to be taken and they may well come in with ideas that work for the company and the people involved – don’t leave it to the last moment if you possibly can avoid it.

Help people being made redundant in every way you can. It’s not just about the financials. If you can help your employees put a CV together, improve their interviewing skills or even connecting them with other businesses that may be hiring you’ll not only be supporting the employee in desperate times but your employer brand will benefit with your remaining staff not feeling so bad about the changes that have to be made.

Keep an eye on morale with the rest of your workforce. Don’t imagine that they won’t be negatively affected just because they’ve still got their jobs – redundancy hurts everyone and if morale isn’t restored then employees will leave given the first opportunity (with the best going first)

Above all, show compassion. I haven’t come across a manager yet that didn’t feel some pain for the people they were making redundant but not all of them have been great at really demonstrating that they care. Tell them you care, ask them how you might be able to help and then help them.

How Good HR Can Help

Good HR is not about order taking and just delivering against management requests. It’s about providing management with more sensible options to improve the long-term success of the organisation. Options that will save money, enhance engagement, increase innovation and productivity and then competitiveness. Who doesn’t want more of that!?

Looking to get the best out of your people?

Whatever your people challenges or opportunities are, we can help. Give us a call on 01273 251152, email us at get-in-touch(at)inspiringpeoplehr.com or click below to get us to contact you at a convenient time.

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