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Financial crisis, recession, economic uncertainty – the consequence: lay-offs. Is that the necessary, sensible, businesswise responsible decision?

Daimler, Opel, Arcelor, SAP, but also Google and Microsoft lay off their employees. For the United States the biggest reduction of jobs since 1945 is already forecasted.

Costs need to be cut in difficult times, the belt needs to be tightened. The company as a whole needs to be protected, last but not least in the interest of the majority of employees (which were not let go). This is the usual and also the ethical correct argumentation. But is it economically sound? Is the short-term benefit really bigger than the potential damage?

Reducing costs, shedding cushions accumulated in fat years, making the company lean and agile, is not a bad idea, generally speaking. It might have been more clever, though, to accomplish that already during the good times and thus be better armed for the upcoming difficult months. But: Better late than never!, as the saying goes. Now it is up to the smart company leader to decide where the dispensable costs are located.

In our companies from the „developed countries” the block of labor cost ranges very highly in the cost categories. That makes cost cutting here so attractive. However, one of the reasons for this is the fact that our people are so highly qualified. They bring exactly the skill set to the table that is not only required for their demanding tasks – all other tasks are long since outsourced anyway -, but that was build up and financed heavily by the companies themselves. All the investments in these so called human resources – intensive recruiting, tedious selection processes, company internal training, additional education, specialization – are lost with the lay-off. As well as the know how of the people about the products, markets, competition, internal processes of their company. That is first and foremost a bleeding. Bloodletting was common practice in the middle-ages and was prescribed almost always no matter what the ailment was, but today we know that this lead more often than not to the early demise of the patient instead of his recovery. This is the danger that also the company faces when reacting to experienced or expected difficulties foremost with lay-offs and thus with decimation of their own strength.

A diet for the company can be reasonable, with love-handles too prominent fast movements are becoming difficult. But “lean” must not turn into anorexia. To hold one´s ground, not only but especially in times of crisis, requires strength. Strength in innovation capability to bind the customers to the company by better, not cheaper, products and services. Strength not to lose sight of the long-term strategic goals and thus stay a reliable partner for the customers. Strength to develop new markets, products and sales channels, i.e. to conquer the recession in the old markets with investment into new ones. Investment into the future in addition to coping with the not so easy presence is only possible with qualified and motivated people on board. A team that is spread too thin is lacking both, power and creativity.

BTW future. All current doomsaying put aside: the recession ultimately will end, there will be a rebound. First signs for this rebound are expected by the experts around mid 2009. In most European countries, with the respective labour laws, this will be about the time when the employees given notice today will actually leave the company. The necessary resources then required, will need to be searched for, found and trained and it will take quite some time before they can be as proficient as the experienced staff from the past.

Would it not be better to rise with the economic upturn with innovations, improved products and processes and motivated people on board, empowered by their own company?

This, in any case, is my point of view.