Are lay offs the best way to increase efficiency?


Yesterday, the news were hailing down in the local and international media about planned lay offs in Sweden. In the shadow of the financial crisis, which seems to be a never-ending story, several big companies are forced to cut down on their workforces in order to reduce costs and increase margins. This is the brutal truth about today’s financial system – the market shows no mercy – it expects continuously increased growth and good margins on a quarterly basis to allow a company to stay in the game.

In a way, I totally support the decision that management takes to increase internal efficiency. With the amplified competition in the market, it is no longer enough to offer a great product or solution; companies need to do that in an efficient way. Increasing revenue is just half the story, the other half is apparently cutting costs. This is basic mathematics, but achieving a good balance of continuous growth in the short-term, without negatively impacting the long-term survival of the company is obviously a hard task to manage.

This situation reminds me about one of our chemistry lessons in school about entropy. Entropy is a thermodynamic property that measures the system’s thermal energy per unit temperature that is unavailable for doing useful work. We were told that the nature of the universe is to constantly move towards increase entropy, i.e. chaos. It is like your house, the probability that it will stay clean (or become cleaner) with time is minimal. You actually need to put in some energy from time to time to reduce the chaos and bring it back to tidiness. Could we draw such an analogy for firms? Could it be that we, from time to time, need to do some bigger housecleaning in order to get back to efficiency? Unless the company is small enough for management to keep good control of and lead by people who see this need every day, this will be probably be required.

From the perspective of an employee, things look of course very different. Most of the employees feel that they are loyal to their company and that they go to work every day to do their best to achieve a good outcome. How self-critical are we? The problem has many dimensions; first of all, loosing your job is not purely an objective thing. Most people wouldn’t agree that management took a reasonable decision to let them go, because “honestly it’s for the best of the company and other people can do my job better than I can!”. How often have you heard anyone say that? Also, psychologically people actually feel that they ARE doing a good job, because they want to believe that. Every person on earth wants to feel that he/she is contributing in life and because they exist, the world is actually a better place. Should we even try to change this mentality? Wouldn’t we have a bunch of depressed people who cannot take praise and who will stay where they are because they feel that they will never be able to develop into something better?

Speaking about motivation, what happens when people get informed, 5 months in advance, that they may loose their job (there are apparently rules and regulations governing this)? What happens to the productivity in a company in which the efficiency level is already low enough to trigger lay offs? Some very few people would probably feel “Oh this is serious, I need to work harder now to show that I really care and to help my company out of this miserable situation”. Most people would unfortunately think the opposite; “what does it matter anymore if I do my job or not, I will probably have to leave soon anyway, and even if I don’t, this is not fun anymore, I’m not motivated to do anything…”. To add even more despair to the situation – the negative people tend to drag down the optimistic ones into the same misery after a while. It is very challenging to be an optimist in a big group of de-motivated people.

There are not really any good answer to whether lay offs are the best way to increase efficiency. However, one thing is for sure; HOW you do it will be decisive for a good outcome.

Read about how Projectplace widgets indirectly encourage greater commitment and participation.

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