Reducing your workforce? Beware, the rules have changed (HR Strategies column)

The 1990s began with widespread reductions in the workforces of many organizations. With the recent publicity surrounding layoffs at major Canadian employers like Nortel and JDS, it seems like déjà vu. Haven’t we learned anything about workforce reduction over the last decade?

The thinning of the health-care sector in the early 1990s is just one example of the adverse consequences of workforce reductions. The widespread layoffs ultimately encouraged many to leave the profession altogether or flock to the United States. At the end of the decade, Canada had fewer registered nurses, and replacement rates for physicians and other health-care providers had dropped below national requirements. As a result, we are faced with a significant shortage of health-care professionals across the country — a shortage that is expected to last for at least the next 15 years.

Organizations dependent on knowledge workers need to approach any workforce reduction carefully if they want to weather an economic storm and remain a viable operation in the longer term. For an increasing number of these organizations, traditional workforce reduction practices have become obsolete because they are based on assumptions that do not apply to knowledge workers.

The first assumption is that people are easily replaced and layoffs can occur without adverse long-term consequences. This is valid for low-skilled occupations, however, laying off knowledge workers means throwing out an organization’s investment in the productive capacity and organizational knowledge of employees. Such expertise takes years to re-establish in an organization. An organization with a poor record handling staff in downturns will find it more difficult and expensive to recruit employees in the future.

The second assumption is that the traditional “least painful” downsizing practices are the best methods reducing labour costs. These mechanisms include:

• freezing hiring of new staff and eliminating existing vacancies;

• voluntary early retirements to eliminate long-service staff;

• voluntary resignations; and

• laying off the most junior employees.

Unfortunately these mechanisms create long-term pain. Freezing hires and eliminating existing vacancies leave essential roles across an organization unfilled while less critical positions remain staffed. Early retirement programs drastically reduce the number of highly experienced staff often before their expertise has been passed onto others in the organization. Volunteer terminations encourage the best employees to leave the organization. Laying off the most junior employees robs an employer of the very people who will form the core of the organization in the future.

The third assumption is to eliminate as many support roles as possible — based on the belief such positions are far less important than line positions. Unfortunately, such practices ignore that work is increasingly group or team based. Too often the consequence of eliminating support roles is a reduction in the overall effectiveness of a team, as well as overloading more highly paid staff with tasks they are not properly trained to perform.

The fourth assumption is that there is no need to reduce the volume of work activity, on the belief that everything will continue to function without adverse impacts on customer service, quality, organizational effectiveness, culture or morale. Unfortunately, past staff reductions have already taken any slack resources out of virtually all organizations, raising work-strain above sustainable levels. Consequently, workload reductions need to exceed staffing reductions if an organization is to continue to function effectively.

Traditional workforce reduction practices only make sense when an organization is letting go unskilled labour, getting out of a business, facing a long-term reduction in business demand, or is forced to sacrifice long-term viability in the hope of surviving in the short term.

Virtually every profession and skilled trade is facing a skills shortages in the next 10 to 15 years, hence it is foolhardy for organizations to let capable employees go until all other options have been exhausted.

Workforce reduction practices need to focus on accomplishing the following objectives:

• keeping the most highly skilled, knowledgeable and capable employees and leaders at all costs regardless of their current positions;

• minimizing the loss of experienced, capable employees, while transferring their accumulated knowledge to younger employees;

• spreading layoffs across all age groups in the workforce to keep the age distribution as balanced as possible to shift the focus away from seniority towards the current and future capability of employees; and

• reducing employee workload levels by eliminating unnecessary activities and redesigning work practices and systems. Too many employees are already overworked and vulnerable to loss through burn out.

In this decade, the best time to reorganize an organization’s workforce is when business is booming. An organization’s HR strategy needs to include keeping the workforce complement and capability at a sustainable level that fits the long-term direction of the enterprise. Continual improvement in productivity and containment of workloads must become a core capability. Organizations need to accrue sufficient reserve funds during the “good” times, to cover the cost of retaining an optimal workforce during the inevitable economic downturns in the future. In short, HR executives need to learn from the past and start preparing for the next economic cycle.

Brian Orr is managing director of OrgArchitect Inc. He will be exploring this topic further at the HR Summit being held in Toronto July 31 and Aug. 1, 2001. Brian can be reached at (416) 453-8633 or by e-mail at [email protected]

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