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January 22, 2022

Staff cuts can lead to long-term bleeding

Deirdre McMurdy, Sympatico / MSN Finance

For the past few months, it seems a week has not gone by without news of significant corproate bloodshed: layoffs - often thousands of workers at a time - have become an accepted part of the economic landscape.

Given the dire circumstances in which many companies suddenly find themselves, it's not surprising: they have to cut costs across the board and they have to downsize to cope with reduced demand. They also have to manage the perceptions of investors and other stakeholders - and therein can lie a problem with long-term implications.

First of all, there's the herd mentality to consider. CEOs all too often tend to watch what those around them do - and then they emulate it. In boom times, that often leads to excessive prices paid for mergers and acquisitions - or whatever is trendy at the time. In downswings, cutting staff takes on an equally competitive edge and it's seen as sending an important signal to the outside world that the company must be on the right track because of the number of scalps littering the lawn.

But relying too heavily on employee cuts can often mean that other, more creative and cost-efficient changes aren't even considered. Surely in every organization there are other, supplementary ways to pare back budgets?

The other thing is that based on  accepted practice, seniority often counts and people who've been in a job for a long time get precedence. That's short-sighted in terms of future growth and nurturing of the next wave of talent. It also means that when the recover sets in - as it inevitably will - a company may have built a reputation in hard times that makes talent harder to recruit. 

There's much more to being an effective manager than knowing how to swing an axe. It's just that sometimes that reality gets overlooked. 



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