Tim Sanders has a great post from the other day called Layoffs: Unless Required for Survival, a Horrible Act.
I chickened out in titling my post here, opting for the ultra-safe “On Layoffs” because I have some more thinking to finalize in my mind on this subject. But Sander’s post is excellent. Here is the bulk of it:
I think it’s socially irresponsible to hire too many people during good times, only to lay them off when the business cycle goes South. It happens all the time, I’ve seen it firsthand. Today, many firms use layoffs as a way of telling Wall Street that they are being responsible – and frequently they get a short lived bounce in the stock price. Note the phrase ‘short lived’.
In my view, socially responsible companies don’t need layoffs when they are still viable or making money. It is not an expense reduction strategy with an upside. It should be a strategy of last resort, recognizing the pain and suffering that layoffs bring to its victims.
I would only want to add that lay-offs may also be necessary if a business legitimately needs to “prune” because of an intentional, well-conceived change in strategy and the way they are doing business.
But the fundamental point remains: It is really, really bad practice to hire too many people simply because “times are good.” You shouldn’t let your hiring — or spending — be dictated simply by the fact that resources are abundant.
This point is worth emphasizing in relation to expenditures especially: If something is a wasteful expenditure in bad times, it is probably also a wasteful expenditure in good times. Good times do not make wasteful expenditures less wasteful. There are no times for wasteful expenditures. This is not only right in itself, but if this were implemented more, there would be less need to cut expenses and lay people off when times get rough.
But the corollary of this is just as important to me (more important): If an expense or program is strategic, it is worth continuing in lean times just as much as in abundant times. Some things that are often viewed as “nice but not necessary if times get tough” are often in fact critical to long-term growth and success. Lean times should not be a justification for short-sighted cost-cutting. The book Profitable Growth Is Everyone’s Business: 10 Tools You Can Use Monday Morning does an excellent job making this point, especially in relation to marketing and promotion.
But there is a nuance here to my above comments. There are many more good and important things to do than there are resources. So sometimes good ideas cannot implemented because of real financial constraints. But then when the economy is doing well, the opportunity is created to do some of those things that could not have been afforded in leaner times. If those things can’t gain sustainable traction before a recession hits, sometimes there is no choice but to scale them back (unfortunately).
So I do believe that there are expenses that should be undertaken in good times that wouldn’t have been undertaken in leaner times. But the ultimate principle remains: Wasteful spending, or unnecessary hiring, is not justified simply because times are good. Likewise, don’t cut strategic, effective spending and strategic positions because times are tough.
The initiatives that are right to do are usually right in lean times as well as good times (see above paragraph for the nuances), and the initiatives and expenses that are ineffective to do are the wrong thing to do whether times are lean or abundant.
In good times, make decisions that can withstand the bad times; in bad times, don’t make decisions that you will regret when things recover — they will, in fact, likely delay your recovery and position you poorly when things do turn.
Update: Also see my post “Employees Are Not Overhead.”