Is downsizing right thing? NCE probes into pros and cons of laying off employees

The fact that we live in a truly global economy is impelled every time the world is confronted with a significant disaster affecting millions of lives and world economies. In 2002, when a lethal pneumonia-like virus known as SARS emerged in China, it generated a near catastrophic spillover effect on global trade.  The world is currently fighting yet another fatality. The speed with which the coronavirus pandemic is evolving, the world is yet to experience the worst of this plague and the impact on the global economy can be more profound in months to come.  

Sri Lanka, as a small economy in particular, where the economic backbone is made up of micro, small and medium-sized enterprises and dependent on the export revenue for foreign currency generation, is already facing a vulnerable situation. The country is currently fighting a global pandemic and enduring a challenging period, both in terms of healthcare and an economic upheaval. It is obvious that businesses are struggling to maintain the normalcy but to no avail. 

Moreover, exporters are experiencing dual supply chain shocks, where some cannot receive raw materials and some cannot secure orders from clients, due to the lockdown in other countries. This has resulted in halt production, whilst many businesses reaching a critical junction. Further, some of the exporters are facing issues with cancelled pre-orders on already manufactured batches of products, in terms of the economic slowdown around the world. In this light, many organisations have reported to take downsizing the employees as an alternative to stay afloat.  

However, it should be highlighted with concern that laying off employees at a time like this will have detrimental effects, since redundancy is the last thing one would expect during a calamity. On a separate note, an organisation may feel that dismissal of certain number of employees would be a short-term solution to address the current business turmoil, yet once the world recovers and recuperate, the business venture will require to grow creating a vacuum of experienced and skilful employees. In such a situation, recruitment of new workforce and training will come with its own cost, exponentially increasing the operational cost of the organisation. Besides, it will not be soon enough that the new recruits will acquire a complete know-how required by the business. As such, downsizing could be seen as only a temporary solution to matters at hand. 

Whilst the businesses are focusing on scaling down activities to a more realistic and manageable size under the circumstances, they also have a legal as well as a moral obligation towards their long-standing employees, who have contributed to the success of the organisation. Human capital, the most valuable resource in the organisation, ensures that business enterprises sustain their activities profitably in the longer term due to a high-performing and effective workforce.  Hence, downscaling such employees may also have a negative impact on the goodwill of the enterprise with a negative public reception and loss of credibility.

Resorting to alternative methods 
Even as the businesses are struggling to keep their head above water, they also have to resort to any alternative methods in sustaining their business than moving towards drastic measures such as pay cuts and layoffs, which impact the human capital of an organisation. When downsizing is a knee-jerk reaction, it has long-term costs. Employees are more likely to be the source of innovation and renewal during tough times. A best laid HR policy should be in place with the consultation of all other departments of the organisation in resolving the issues at hand.
It is also important to note that in this situation, the government has initiated beneficial relief packages for corporates by offering various concessions and debt moratoriums through the banking system of the country to mitigate the losses that could arise from adverse business sentiments. 

Since the business sector, especially the export enterprises, plays a vital role in the economy, the state has announced these initiatives amidst the huge expenses currently incurred for the health sector, for which we have to be grateful and appreciative. 

On the same note, the authorities ought to monitor and control how the concessions are granted in terms of debt moratorium, as some corporates may take undue advantage by utilising the grants given by the government and will not pass the benefit to their employees. In the end, they might resort to pay cuts and also laying off their employees, which will be considered as unethical to take undue advantage during a crisis. 

Moreover, businesses can adopt best practices by business process re-engineering, involvement of employees in search for ways to reduce costs, waste and inefficiencies, diversification of business into related or non-related areas and encouraging employees to be innovative. Any organisation has a reputation to protect and best HR practices during a calamity will complement the status quo and will also sustain the business to the future. 

On a more pressing note, businesses cannot perform employee redundancy in a haphazard  manner, as there are regulations laid by the Labour Department of Sri Lanka to protect labour rights. Business enterprises must stay apprised of the current legal landscape and ensure the operation comply with the rules as failing to follow labour and employment regulations can become quite costly. 

Beyond the headline costs are the potential chain reactions of negative economic impacts to countries around the globe. With every region at risk of natural and man-made disasters and supply chains and markets increasingly globally connected, it is becoming ever more important for businesses to develop robust disaster plans to reduce the potential impact. But to work out disaster plans, the starting point is to understand what that impact could be and how events far from your core operations could hit your business.