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Layoffs Create Far More Productivity Loss Than Cost Reduction

Monday, November 17, 2003

According to the Society for the Advancement in Consulting, organizations considering the reduction in staff to reduce costs should think again, because the impact on the bottom line tends to be negative, not positive.

"For every employee who is released, we've found that three more virtually stop working, although still employed," says SAC CEO Alan Weiss, Ph.D. "We call these employees 'zombie workers.' " They comprise three archetypes:

  1. The Guilty. These are employees who feel guilt over their colleagues' losing their jobs while they, themselves, were not let go. Watching others, with similar family situations, mortgages, and pressures get the axe while they were often inexplicably spared seriously undercuts return to normalcy and productivity. Guilt can last for six months or more.
  2. The Frightened. Other employees will seek desperately to avoid their colleagues' fate, and will do so by "hiding." "They will stop answering their phone, will take zero risks, and may even physically disappear from their offices and cubicles," notes Weiss. "Their mantra is 'out of sight, our of mind.' "
  3. The Bold. The high performing employees will take the initiative and get their resumes out on the street, especially since they are the most attractive to rival firms. Weiss notes, "The 'bold' will leave in droves if they see evidence that layoffs are politically determined and/or that cuts seem to ignore actual performance and contribution."

SAC emphasizes that well prior to any reductions in force -- and perhaps as a contingency plan in any case -- organizations should employ an objective, outside consultant to develop comprehensive and rational models and implementation steps.

"Sometimes reductions are inescapable," Weiss says, "but most organizations lose three people who are still employed for every one they place on the unemployment list, and that's a productivity loss they simply aren't expecting and certainly aren't prepared for. With proper advance planning, those catastrophic side-effects can be prevented using appropriate communication, compensation, training, reward, and other tools."

The phenomenon has been documented by solo practitioners throughout the United States and Canada and has led to an advisory by SAC to educate clients about these conditions.

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