Skip to comments.Do Massive Layoffs Really Benefit Companies?
Posted on 07/20/2014 6:10:46 PM PDT by SeekAndFind
Microsoft's (NASDAQ: MSFT ) recent announcement that it will cut 18,000 jobs was much higher than anyone expected. It's the company's largest layoff by headcount since it laid off 5,800 employees in the midst of America's Great Recession back in 2009.
Microsoft isn't the only one to make such striking job cuts. Global pharmaceutical company Merck (NYSE: MRK ) is in the middle of a two-year plan to reduce its workforce by about 20% -- which equates to about 16,000 employees. At the end of it all, the company expects this to contribute substantially to its goal of saving $2.5 billion by 2015.
Eliminating jobs is obviously bad for those on the receiving end of the downsizing. But it's also possible for massive layoffs to hurt the companies as well. Conventional wisdom says massive layoffs create a more efficient company and makes it easier for the company to retain profits. But the research on mass layoffs may paint a different picture on the long-term benefits of deep employee cuts.
The cost of layoffs Researcher Wayne F. Cascio from the University of Colorado's business school found that simply cutting jobs isn't the answer. Companies need to change how the business is run as well. Cascio looked at data up to nine years after a company's downsizing event and found that, "As a group, the downsizers never outperform the non-downsizers. Companies that simply reduce headcounts, without making other changes, rarely achieve the long-term success they desire."
He notes that massive cuts lead to fewer sales people, less research and development, and a loss of high-producing individuals. The result is lower sales, reduced product innovation, and decreased productivity due to low morale.
(Excerpt) Read more at fool.com ...
I know what I speak of here. LOL.
the xbox one was garbage. It was hyped until it came out. Now, silence.
Micron and Intel stock jumped after big layoffs.
Layoff Americans and hire in India is now the working model
The CEOs and CFOs get boosted salaries.
Remember MS is dealing with Washington labor laws. Probably a significant number of the people “laid off” are just people they wanted to get rid of but didn’t have the paper trail to make it work with legal. Layoffs open that opportunity window. Where I work was HQd in Washington for a while, we sold off a division and laid a bunch of people that the buyers “didn’t want” who actually had nothing to do with that division.
Wholesale cuts, across the board are very dangerous.
Maybe we need context, but “As a group, the downsizers never outperform the non-downsizers.” is about as enlightening as “Companies that are growing always outperform companies that are dying”.
The academic knows better....
The reason for mass layoffs is to take the restructuring charges against profits at a time that it is favorable to do so for the company. It’s much more complex than this lightweight piece suggests. And it’s not about the salary cost, it’s about the total cost of employment of those people for the rest of their career, which includes the three taxes (SS, unemployment, and medicare) plus workers comp insurance, and company benefits. A good estimate is 30 to 50% on top of the actual salary, more if the company offers a pension or other disappearing perks.
Public companies really don’t care if they sell out their future for the sake of another quarter. That’s how the system is incentivized, and to a CEO making several million dollars a month or more, having another three months of job security is worth almost any dumb decision you can think of. Layoffs are like candy to investors, they see the short term gain and will worry about the long term cost another quarter.
I don't know if massive layoffs are the right way to purge the company. But it's pretty easy to make an argument for a large company to let go of the bottom 5% every year and fix those problems with new hiring.
If 95% of your hires are good, solid employees, then your company is doing a heck of job at the interview process.
similarly is it enough (longterm) to just cut calories? Or do you need to adopt a positive agenda of nutrition and fitness including building muscle?
Or in the family context is it enough (longterm) to just cut expenses? Or do you need to figure out a positive agenda of increasing revenue?
Positive movement is always far more powerful than negative esp longterm.
18,000 x $50,000 = $900,000,000
If they’re not bringing in a billion dollars of revenue...
No. Imagine the productivity you could get from 18,000 people!
RE: Imagine the productivity you could get from 18,000 people!
That of course assumes:
1) That all of them are productive.
2) All of them do not COST MORE in terms of salaries and benefits than their contribution.
3) All of them have the skills needed to develop your next big, profitable product.
RE: 18,000 x $50,000 = $900,000,000
The average Microsoft salary is $90,000.
And that doesn’t even include benefits like healthcare, paid vacation, etc.
My company has been cutting, and the biggest target on your back is the pay grade - if you aren’t a manager.
It is the same bureaucratic weakness that affects government. Get rid of expensive doctors, bring in nurses and assistants. But no one thinks to cut oversight.