How People Analytics Can Help Organizations Thrive In A Downturn
CEO and Co-Founder of TrenData, a leading provider of people analytics software.
Whenever the economy hits a rough patch, business leaders' first reflex tends to be cutting costs. At most organizations, the largest fixed cost is payroll, which can account for as much as 70% in a typical corporation, according to compensation provider Paycor. Not only is the decision to let people go a difficult one, but it's also something management must consider in terms of long-term loss versus a short-term gain to the bottom line. That's because in many cases, workforce reductions can cause a great deal of indirect damage to an organization.
Below are three often overlooked, but very common, side effects that many organizations have had to deal with following a layoff.
1. Impact On Remaining Employees: According to a study done by the University of South Carolina, the average effect of downsizing a workforce by just 1% leads to an increase of 31% in voluntary turnover the following year. Widespread layoffs can weaken morale and cause employees to feel as if they have lost control.
2. Decline In The Organization's Brand Equity And Sales: According to an international study conducted by the American Marketing Association, sales for organizations that conducted a widespread layoff were 8.7% lower following the announcement of such than forecasts previously predicted.
3. Challenges Ramping Back Up: Organizations that administer quick, large-scale layoffs are often unprepared to meet demand when conditions improve, particularly if the economy snaps back quickly.
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