Restructuring does work
There are alternatives to across the board layoffs that do work to reduce costs. One of the most effective and most immediate of these is restructuring. Often, when job cuts are undertaken in order to pacify the investors, the announcements talk about the cuts as part of a "streamlining" or "restructuring", but they refer only to the people involved. There are other aspects of the company's business that need to be restructured as well. These often include things such as closing of obsolete plants or branches, administrative overhauls, selling of non-core operations, or improving internal processes.Dorfman believes that when a stock shows a gain over the year or two following cuts, it is often the non-layoff elements in the restructuring package that deserve the credit.
Arguably, these kinds of things take longer to effect the bottom line than cutting out the salaries of the laid off employees. However, when one considers the costs of severance payments to those employees, continued health care payments for some, increased unemployment charges as a result of the layoffs, reduced productivity following the layoffs, etc., that may not be valid.
Typically companies will take a "one-time charge" against earnings to cover the layoff, which clears these costs from the books quickly. In reality the change won't make any difference until at least the next quarterly report. In that same period, other, slower changes could have been implemented and have shown similar cost reductions. The difference then is mainly cosmetic. Making the numbers look good quickly (layoffs) so Wall Street is happy versus slower method of restructuring the business that preserve the company's significant investment in its employee capital.
Manage This Issue
Find and fix the problem. Don't just cut jobs to look good to the investors. Make the changes that will make the company better instead of damaging the very thing that made the company successful in the first place, its employees.Restructure the business to make it better. If a function is not contributing to the company's success get rid of it, but cut from the head down, not from the bottom up. Make sure remaining employees clearly understand the selection process that was used to cut under-performing units or functions no longer sufficiently valuable to the company.
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