Peter Cappelli, director of the Wharton School’s Center for Human Resources and one of Winning Workplaces’ Top Small Workplaces judges, told The Wall Street Journal recently that he predicts a mixed message will come from business executives in the next few months: While laying off employees, they will simultaneously complain of a talent gap they need to close.
This apparent contradiction is at the crux of the hard choices many small business leaders are facing in today’s uncertain economic climate. Understandably, they need to cut costs, and often this translates to reductions in direct labor costs. However, the link between this and filling their skills gaps cannot be overstated.
On the one hand is the loss of all talent, and certainly some top talent with it – whether it be a layoff here and there or, as has been the case for Yahoo! and Motorola in recent weeks, a wave of pink slips.
But on the other hand – and perhaps more importantly for smaller firms with more sensitive work cultures and, often, less cash and resources than their larger peers – is the psychological effect that layoffs can have on the remaining staff. If leadership fails to pay close attention to their treatment of departing employees, the ones left on the payroll can easily develop “survivor syndrome.”
Consider a small business leader who sees that the demand for his company’s products and services has dropped 20 percent in the last six months. He decides to cut labor costs and lays off staff by the same percentage, with the goal of hiring that 20 percent of the workforce back on once conditions improve.
What about the 80 percent of staff who remain? You can bet all of those employees are going to be watching their backs more closely than ever, wondering aloud to each other in hushed tones who will be next to leave.
Survivor syndrome can have a damaging and lasting impact on small enterprises at precisely the time that employee communication, commitment, attention to detail and innovation need to be at their highest levels in order for the business to survive.
Yet, as Cappelli noted in the Journal, the leaders of these firms are indebted to their management team and often to a board of directors and/or shareholders or outside investors to assure the firm’s survival. So what options do they have?
As we noted in last month’s Success Story, the leadership of Massachusetts-based technology PR firm Corporate Ink leveled with staff during an industry downturn a few years ago, admitting that the hard choice was between letting one person go or everyone agreeing to a pay cut. Staff chose the latter, with each employee taking up to a 10 percent cuts. The CEO took a 30 percent cut. Luckily for them, they kept their clients and added some new ones, which allowed normal salary levels to be restored fairly quickly.
This scenario took place in a very small, white-collar environment, however – many other organizations aren’t in a position to have all employees, or even all leadership, take pay cuts. Blue collar businesses, for instance, may be much more tied to the demand of their widgets. In that case, they do have some options when it comes to changing how they approach productivity.
The production mentality when times are good is often “just in time.” In times like these, small enterprises may find it beneficial to actually build up inventory, so that when conditions improve they are able to meet what would then be much heightened demand. Simultaneously, these types of firms should look at how they can continue to operate while they dial down production to be in sync with current, lower demand.
Even on the direct labor side, there are options available to leaders to operate at a lower capacity while not necessarily trimming the workforce. Switching from a five- or six-day work week to a four-day week will result in fewer bodies in the office and promotes work/life balance – or at least the opportunity for employees to supplement their work at the firm with other employment.
Other options along these lines include giving employees voluntary sabbaticals – offering them the chance to do something they’ve always wanted to do. They could even use this time to go back to school and gain training to help them in their career paths.
Of course, there are many more choices available to leaders of small firms that can serve as an alternative to layoffs – or at least as a way to lessen them and, thus, the potential for survivor syndrome. The main thing is to be thinking about helping your workers in good times and in rockier times such as these. The extent to which you can “share the pain” with them will impact their morale and commitment to the business, and the strength of the business, in the long term.
Last month the Labor Department announced that although unemployment dropped by .1 percent, the U.S. actually lost 17,000 jobs. When you consider that small businesses have generated at least 60 percent of new jobs annually over the last decade, according to SBA data, the ability of the leadership of small firms to hold on to their people in any economic climate – including by some of the means mentioned above – becomes ever more critical.