Do lay-offs work?
I spent 25 years in technology companies, all of which went - at some time or another - through protracted periods of lay-offs.
Thus, I was understandably interested in a question posed by Paul Michelman over on The Harvard Business School Press blog. Michelman asked Jeff Pfeffer, a Stanford B-School professor, for his reaction to Citigroup's recent announcement that they would laying off 17,000 employees. Here's what Pfeffer had to say:
"There is lots of evidence on the effects of downsizing—or 'restructuring' as it is sometimes euphemistically called—and that evidence mostly indicates that downsizing does not increase stock price over a long period of time or enhance productivity, quality, innovation, or customer service. "
Pfeffer was reacting to a New York Times article on the lay-offs, which apparently stated that 8% of Citigroup's employees would be "affected" by the cuts, an percentage that Pfeffer regards as ridiculous:
"Until people know who is being laid off, many will be fearful. And there is lots of evidence that those who 'survive' layoffs also exhibit diminished motivation and attachment to the organization—sort of 'survivor' guilt. Citigroup’s actions will affect most of their employees—all right, not the big cheeses but the rank and file—who will wonder who is next and what this portends for the future."
I'm happy to read Pfeffer's comment that the evidence suggests that lay-offs fail to "enhance productivity, quality, innovation, or customer service."
That was certainly true at the companies where I worked. More to the point, lay-offs failed to ensure survival.
Of the five companies I worked for during those 25 years, the only survivors (sort of) are the companies - Dynamics Associates and NaviSite - that bracket my years in the corporate world. In the first case, Dynamics Associates (a brainiac little consulting firm that specialized in econometric and financial modeling) was acquired by Interactive Data Corporation. I was with Dynamics during its last, immediate post-acquisition years. During these times, we floundered around trying to "survive" while waiting for Interactive to figure out what to do with us. Those times were painful, and riddled with lay-offs, but Interactive eventually did figure out what to do with Dynamics, which was to close it down and take the products and employees back to the mothership. Interactive Data - an incredibly focused and, by the standards of the other companies I worked for, incredibly successful, is still in business. A number of my former Dynamics colleagues are still there in high level positions.
I left Interactive Data after getting into a snit with my boss. The rebound took me to Wang Labs. I've lost track of the lay-offs I survived during the two-and-a-half miserable years I spent at Wang, but they were numerous and, if I remember correctly, at least quarterly.
Softbridge is another story entirely. But throughout my 9+ years there, we had a number of lay-offs . In fact, I was fired - my first Pink Slip - after a knock-down, drag-out fight with the president over how we were going to position the lay-offs we were about to have to the survivors. I did everything short of challenge him to a duel, but he was the one in possession of the dueling pistols and he chose to use one on me. Ouch! As I said, this is another story entirely. In any event, a few Softbridgers survive, a vestigial organ, in a company that was spun out from Teradyne, which had acquired Softbridge somewhere along the way.
At Genuity, my next career stop, we began regular lay-offs in the wake of our disastrous IPO and the disastrous whatever-it-was with our crypto-parent, Verizon. Having volunteered for separation from that disaster (which spun fully out of existence and into bankruptcy), I vowed never again...
That was until my former boss at Genuity asked me to join his team at NaviSite. I was getting better at figuring out the lay of the land and, when I walked up that gang-plank I made a mental note that I would be there 18 months max. It turned out to be 16 months before they turned me and my ex-boss out.
So, while I've never been in a corporation large enough to have a 17,000 person lay-off - although Wang, arguably, ended up laying off 30,000 people over the years - I am no stranger to lay-offs. I've put people on the list. I've taken people off the list. I've warned people their time is coming. I've been laid off. I've told people that they've been laid off. I've helped people pack their offices up. I've carried boxes to the door. I've been the "buddy" with the Kleenex. I've traded rumors. I've had the inside scoop. I've worried. I've been relieved. I've sat through the post-lay-off rah-rah meetings. I've been a cheerleader at the post-lay-off rah-rah meetings.
So I probably know a lot more about what lay offs are actually like than most academics who study them. And I'm sure that Jeff Pfeffer is right.
While each of "my" companies had unique issues, all were the same in that the lay-offs never solved anything. In some cases, they seemed to accelerate the death-spiral. The obsessional focus became "if we just cut heads/expenses one more time, then we'll be right-sized and survive." Time and energy that would have been better spent on trying to figure out what our purpose and value to customers was, instead was wasted on quarterly, roller-coaster lay-offs.
The pattern in a couple of the larger companies (Wang Labs, Genuity) where I experienced quarterly lay-offs was one in which it would be rumored that a lay-off was coming; the rough timing of the lay-off would be announced; people would start speculating about who (groups,categories,individuals) would be impacted; work - other than the absolutely essential must get done to keep operation - would slow to a crawl; lay-off would occur; company meeting/memo/whatever to bolster the survivors - "we've turned the corner, blah-di-blah"; a few weeks of almost fully concentrated work - but never completely so, there was always too much fear and trembling, sorrow and guilt; then rumors of another lay-off...
And so it went. Lay-offs were always too large, and never large enough. They were, however, something that management could actually "do" and demonstrate "results". ("We said that we were going to cut personnel expenses by 10% and we have....")
If the lay-offs I experienced had been "smart" lay-offs, in which off-strategy or non-profitable business units, product lines, offices were closed down, that might have been one thing. They never were. Instead, they were numbers games - 'how many people do we need to get rid of in order to make the number we have in mind?'
In any case, I've yet to see lay-offs solve a fundamental identity problems (lack of focus, lack of strategy, lack of coherence, lack of will, etc.) of any company. Never.