One of the most difficult tasks for a company’s leadership is determining the right size of the workforce to address current and future market conditions (and the business strategy). When times are good and the company is in growth mode, it is easy to add staff. When conditions change (as they always do) a company may be compelled to reduce the size of the workforce. There are various terms for reducing the workforce including downsizing, lay-offs, and Reduction in Force (RIF)
There are differing opinions on the long-term value of conducting lay-offs. Many studies and the opinions of industry leaders and Human Resources professionals lean toward avoiding lay-offs as much as possible. The thinking is that when conditions improve this talent will be needed again and the cost of recruiting will exceed the cost of carrying their salary. Additionally, lay-offs do impact the trust between the workforce and the company’s leadership.
As a boss, your job is to ensure you have the right level of staffing and talent to accomplish your group’s goals. A natural occurrence during good times is that companies tolerate lower performers and finds themselves carrying “dead wood”. Indeed, the first round of lay-offs often comprise individuals whose contributions may have been questionable (this is not to say that the first round of lay-offs do not also include good performers).
There are no simple formulas to determine the right size of a workforce. Best management practices suggest to first determine the business strategy, then the organizational structure, and then the staffing.
If your company tracks metrics such as number of widgets per employee, revenue per employee, etc. you can use these to determine correct staffing. Always weigh short-term actions against long-term consequences; if you think you will need the staffing back within 6 months to a year, and the company has the financial ability to carry overhead, you may want to consider holding off.
(The below links are from a series on About.com/management.)
- How to downsize with care by keeping employees in mind.
- How to downsize your business.
- Alternatives to layoffs.