After a long ride, you arrive at 10:00 am only to find a message reading ‘Meet me once you are in office- HR.’ While walking towards the cabin, you wonder what this is all about. As you are about to knock on the door, a knot begins to form in your stomach. And while you are fidgeting and wondering if you should step inside, suddenly, the door opens; the HR manager’s head emerges, notices you, and says, “Ah, morning, please come in.”
“I’m sorry to tell you that sales have slumped, and we cannot employ as many people. This is why we are letting you go. All the best for your future endeavors.”
And that’s it.
By the time you walk towards your desk, your computer has gone back to IT. In the next 15 minutes, you have to collect any personal items and say your goodbyes.
And just like that, you are unemployed.
This situation might seem a little extreme for those who aren’t worried about their companies laying them off. But, is it about time for you to really start thinking about it? What if this happened to you tomorrow? How would you feel?
If this scenario has left you feeling a tad bit anxious, you are not alone. According to the report published by CareerArc., 48 percent of employed Americans experience layoff anxiety. Out of those, 34 % say this is fueled by fear of a recession, 32 % cite rumors around the office as the cause, and 30 % say a round of workplace layoffs is to blame.
With almost half of the States worrying about losing their jobs, it is about time everyone understands the meaning of layoffs, rightsizing, and why companies do it. Our latest HR blog will help you understand all of these pointers in detail. Let’s get started.
What is layoff?
In simple terms, a layoff is an action taken by employers to terminate employees due to their lack of performance at work and more. Investopedia states that the other reasons for letting employees go are the decrease in the number of operations, the employer is relocating, or is planning to cut costs. All of this eventually leads to increased shareholder value.
This term is used from big multinationals to mid-sized organizations, as well. Headlines such as ‘30,000 Toys R Us to get pink slips’, ‘Tesla let go of 3,000 employees’, and ‘18,000 workers will no longer be associated with Deutsche Bank’ are gaining attention all over the globe. So, what the exact reasons why such industry giants have to terminate their employees? Is it just to cut their expenditure or something else? iTMunch has a list of the top five reasons companies in the US and other countries opt for mass layoffs.
Top Five Reasons Companies Opt for Mass Layoffs
Lack of funds
Companies might not always be behind saving money; it is possible that they might not have it at all. When there is no inflow of new business, and a company does not have any other source to pay its employees, it has to let them go. Because who really wants to work without getting paid?
Lack of work
Let’s be honest; business isn’t always growing. For companies like factories, and even those dependant on the seasonal inflow of customers, orders may not come in the same quantity as they once did. When there isn’t enough work to be done, employees can’t be kept to do nothing.
This is when two or more companies decide to become one entity. In such a situation, employers choose to lay off those employees who are expensive or whose responsibilities can be taken over by others. Merging two companies almost always means everything is going to undergo a massive change.
In this type of transaction, one party purchases shares of a business to acquire a controlling interest in that company. This occurs when the purchaser believes an organization is undervalued and can be better valued under the purchaser’s ownership.
When someone new takes over, the goals and strategies of that particular company change ultimately; the new leader with his new business model might decide to change policies, processes, and get rid of employees who no longer match his requirements.
According to a new PricewaterhouseCoopers Retail & Consumer Industry Practice report, over two-thirds (68 percent) of large US consumer products companies are outsourcing some portion of their workforce.
This is because companies often realize they can buy products at half the price by changing their vendor to a different company. Similarly, it is much more cost-effective to use employees from other businesses for a specific job function, rather than building an in-house team.
These are the top five reasons for layoffs in the United States of America. Now, let us look at another term which has been creating a buzz amongst companies and employees, likewise- rightsizing. Is it similar to layoffs, or better? Scroll down to find out.
What is rightsizing?
For many, rightsizing is similar to downsizing or layoffs. However, rightsizing is more than just terminating employees to reduce expenses and improve profitability. In simple terms, rightsizing refers to getting the company to the optimal size, which will help meet its new business objectives.
Along with letting go of employees, by implementing this strategy, an organization can hire candidates who have relevant skills and levels of expertise that the company is lacking. Here, they can shift certain employees to new roles to better use their in-house knowledge in other areas.
Now that you know the meaning of this term, let us focus on how companies implement strategies to optimize their workforce while minimizing the negative impact of rightsizing.
Top Strategies adopted by organizations for rightsizing
This refers to the reduction of staff members due to several voluntary and involuntary reasons. Here, employers can get rid of specific job profiles, terminate contracts, or even ask employees to retire. In this strategy, employers might alter job descriptions of the in-house team members to absorb the duties of departing co-workers. This will eventually result in greater operational efficiency. However, there will come a point when the employees are stretched to their maximum productive capacity; this can be a sign that the workforce has reached its optimum size.
During layoffs, companies almost always decide to get rid of employees based on their seniority irrespective of their performance. In contrast, rightsizing focuses on retaining only those team members who can add value to the organization and help meet its evolving goals. In this model, the management team and HR executives give employees an opportunity to increase their performance before letting them go.
When it comes to attrition, early retirement, and optimizing performance, it is apparent that employers want to let go of some employees. The course of action and its impact is straightforward. However, a few companies adopt unconventional employees to get rid of team members without making it look forced. This includes freezing bonuses and appraisals, cutting benefits, rejecting overtime hours, or reclassifying employees as part-timers. By adopting these techniques, hiring managers can keep people onboard while still reducing payroll costs. Alternatively, organizations choose to furlough employees or allow them to work from home to reduce overhead.
Top Benefits of Layoffs and Rightsizing for Businesses
By now, hopefully, you have a brief idea of why organizations adapt or make changes to their existing human resources strategy. Now, let’s understand how this change in policy affects businesses irrespective of their size in a positive way. Mentioned below are the top advantages of layoffs and rightsizing.
The main motive of layoffs is to eliminate employees who cannot offer something new to the organization or can match its changing demands. This helps companies get rid of those candidates doing virtually the same work as those in other departments. By removing redundancies and unproductive salaries, employers save a lot of money.
Improve profit margins
If a layoff is strategically planned, it can help the owner of any small or big company to improve its profit margins from a long-term perspective. This is because every workplace has business units or even employees that have little to no impact on the profitability of a business. By dissolving these units, companies can use that money to invest in departments that offer higher returns.
Say goodbye to poor performers
Last but not the least, the undeniable benefit of rightsizing is building a team that adds value and helps an organization reach newer heights. This is because, while implementing these HR models, employers get a chance to recognize team members who have performed poorly in the last fiscal quarter or more.
There you have it- every minute detail about layoffs, rightsizing, and why companies do it. As mentioned earlier, these policies can be adopted by any company, big, small, domestic, international, famous, or even unknown. So, how can you be sure you are not the next one to bear the brunt of these untimely layoffs? We have prepared a list of types of employees who are often the first to go.
What Type of Employee are You?
1. The ones whose work can be easily outsourced
As companies try to cut costs, they often look for alternatives at a lower price. This is when outsourcing comes in the picture. Earlier, only employees working in call centers were at risk for layoffs due to outsourcing. However, today, almost every little to a big task can be given to someone else, from writing to designing and manufacturing.
2. The one who isn’t willing to leave his comfort zone
Irrespective of the type of industry you are working in, it has likely undergone a transformation in the last ten years. As the industry changes, the people working in it need to be adept. So, if you are willing to grow in your career and secure your job, welcome training and skill development programs with open arms. Resistance to change or out-and-out refusal to change the way you perform your job will make you a target for future layoffs.
3. The demotivated lot
Some employees spent half of their cleaning their desks, watching videos, and doing every little thing that can distract them from working. When an HR or a senior manager recognizes employees who aren’t interested in their jobs anymore, they target such workers while terminating.
4. The person who costs too much
Let’s face it; every hiring manager is trying to hire the best talent without burning a hole in their employer’s pockets. When a company is making financial cuts, the people drawing the biggest paychecks will get a closer look. If it is easier to fire an expensive person and hire two employees at a lower price with a similar skill set, a company would not think twice before doing it.
5. The people who do not add value
Let’s consider you are handling the social media department. If your regular Facebook, Instagram, and LinkedIn posts aren’t gaining any traction or engagement, your work isn’t adding any value. When there is no return on investment, it might be time for you to start applying somewhere else.
Hopefully, the above descriptions do not match your personality type in any way, and if they do, it is time to change the way you work or who you work with.
By now, we are sure you must have a brief understanding of:
- What are layoffs?
- Top reasons behind layoffs
- What is rightsizing?
- Top three rightsizing strategies
- Type of employees who are the first ones to be fired
As mentioned earlier, unfavorable market conditions often push companies to opt for mass layoffs, rightsizing, and downsizing. No company ever plans to terminate any employee without a valid reason. If you think your workplace is financially affected due to unforeseen circumstances, start looking for a more secure option, or a Plan B.
We hope this HR blog has answered almost all of your questions. If you have any queries or suggestions, feel free to get in touch with us. Stay tuned with iTMunch for similar HR, Finance, Tech, and AI blogs.
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