4 reasons to rethink your downsizing decision

Sure, laying off employees can cut costs — for now. But more often than not, those savings disappear after a few quarters. And long after the short-term savings fade, your company could be left with these hidden costs:

1. Indirect costs outweigh direct savings

The direct costs of severance pay and outplacement services coupled with the indirect costs of replacing employees who are familiar with how the company operates often negate any short-term success.

2. Layoffs scare off the top workers

Studies from the University of Melbourne and the University of Colorado have found that employees were much more likely to quit companies that practice repeated downsizing. The University of Colorado study actually revealed that the chance an employee will quit increases with each round of layoffs the employee survives.

3. Organization performance doesn’t improve

It’s bad enough a downsizing effort may cost you a few high performers. The psychological effects on the employees who stay will likely cause company-wide performance problems as workers question their job security.

4. Employee retention means customer retention

The effect on public image is a cost of layoffs that is often overlooked. When customers find out a company treats its employees poorly, they tend to wander. In fact, research by Bain & Company’s Fred Reichheld revealed a direct correlation between employee loyalty and customer loyalty.