Don't hit that downsize button … yet

A reduction-in-force might increase cash flow, but is your company prepared for the employee exodus that’ll follow?

The question isn’t how much will downsizing save your company, but how much will it cost you in the long run? A study in the latest Academy of Management Journal suggests that companies who conduct layoffs often bite off way more than they can chew — and end up scrambling for employees in the process.

Results of the study show businesses that terminate a mere 0.5% of their workforce sustain a turnover rate of 13%, while the average turnover rate for companies that don’t impose layoffs is only 10.4%. Companies who go through a reduction-in-force lose five times as many workers in the long run.

Two factors make these results stand out even more:

1. Employees who leave a company after their co-workers are downsized are typically better-than-average-performers. Otherwise, they’d have been eliminated during the reduction-in-force.
2. The turnover rate continues to climb for companies who implement larger layoffs. A 10% downsize bumps the turnover rate up to 15.5%.

When cutting staff levels, increasing the efficiency of remaining employees is a top-priority. But one efficiency booster in particular — especially in finance — can actually increase the likelihood that an someone will seek employment elsewhere in response to layoffs: cross-training.

Sure, it can keep staffers prepared for when someone’s out sick or when they need to pitch in on other duties. It also helps develop their departmental skills, which can make them a valuable addition to another company’s team.

Sometimes, the dirty d-word is the only option a company has. But sacrificing a few for the needs of the many might end up doing for more harm to efficiency and the bottom line than good.