The coronavirus pandemic had a huge negative impact on X-Logistics, which with suspension of travel during the lockdown and subsequent decline in importation of goods was struggling to make ends meet. To survive, and give room for business recovery, the Board tasked management to cut payroll by a third. Immediately Kuma, the CEO, saught Mpetu, Head of Finance, how to go about by suggesting, “We need to start with the most senior positions to lay off taking a huge chunk of our money.
“I agree,” Mpentu nodded. “Otherwise they will be no effect.”
“Then proceed by finding the most expensive staff,” Kuma, already stressed with having to scout for finances, directed.
Once clear the decision was taken to senior management meeting for approval. But the moment Mpetu had presented his case with glossy slides showing the savings to accrue from slashing off so many heads, Ngozi, who was Head of Human resource, raised an objection.
“I agree with the need to lay off some staff in order to save funds,” she said, “but we need to be careful how. I do not think we should merely look at how expensive a particular staff is but also what we lose by letting the staff go.”
“I know where you are going,” Mpentu turned to Ngozi. “But if we approach this task with some staff being untouchable then we can’t reduce the bloated payroll.”
“The issue is if we lay off some of these skilled staff,” Ngozi pressed her point, “not only shall we lose all the investment we have made in them and which, by the way, we are most likely to surrender to our competitors, but also the skill set we need to forge ahead.”
“So, what are you suggesting?” Mpetu asked with some impatience.
“I suggest we start by identifying the skills we need for our business recovery,” Ngozi said. “We have a business plan and unless we are abandoning all our plans ahead we need to see what skills are important to save us for the future.”
There is a paradox today for many companies that are caught in similar situations of scarce funds like X Logistics. Normally, in lean times companies tend to slash staff as one cost saving measure, for business recovery. The question often is whether the company should merely look at what it saves in the immediate short run, without considering what it has lost in the long run! There are yes certain staff ( or skills) that can easily be absorbed back once the operations return to normal. The market is not short of such. But there are those who are so specialized that to lose them, the business may never completely be in position to lure them back. Besides, as we see Ngozi arguing, it may be important to consider what has been spent in getting them to their level and if it is worth to just let go.
Then there are those highly specialized or emerging industries. The training of certain individual skills in such industries may have taken years and laying them off may mean losing them to the market, which leaves the business at the mercy of its competitors who may then take advantage and gain leverage. This may make it more difficult for the business to fully recover.
One of the truisms in laying off staff is first deciding what you can’t afford to lose. Or put positively, what is the most important thing you must save for business sustainability. Without bearing that in mind slashing staff may while causing a temporary relief completely seal the chances of full business recovery.
The writer is a Management Consultant, Associate Professor and Dean of UCU Business School. E- mail: mlwanga@uc.ac.ug