The Real Impacts of Cutting Personnel

IMF members met on April 22nd to discuss the issues surrounding personnel reductions in response to a sagging economy.  With revenues down, pressure is up to cut costs by any means necessary.  However, some companies and economists argue that cutting personnel to meet today’s needs are not the best course of action.  These individuals, as explained in a recent CNBC article, argue that retaining staff will position companies to increase production to pre-resession levels with greater speed than their competition.

During the IMF Web Forum, a CIO and a staffing professional both offered their perspectives on this issue.  They led the group through a series of considerations that support the arguments against staff reductions.  Here are several of their points:

  • Personnel reductions are not only a way to reduce expense – they also carry some hard and soft costs of their own.  Your company may no longer appear as an Employer of Choice, and those that are retained may suffer Morale Decline.  Rehiring, Severance, or Retraining Costs may be significant.  Opportunity costs can also mount, when Projects are Delayed or Services are Reduced.
  • The ability to have a large impact on the bottom line through staff reductions is largely dependent upon a company’s staffing model.  Particularly in the IT organization, where automation is relatively high, staffing models are already lean – and therefore staff reductions may be more of a risk than an opportunity.
  • A significant portion of the IT industry today is comprised of seasoned professionals that are nearing retirement age.  If these individuals are let go from the organization too soon, they will not be able to bring the next generation up to speed on the specifics needed to integrate technology with specific business requirements.
  • Although the unemployment rate averages roughly 9% throughout the US, the estimated unemployment rate for IT is closer to 3%.  This will make rehiring following a staff reduction very difficult, particularly if the positions in question are in higher demand.

For many companies, staff reductions are unavoidable.  Where costs must be cut, some organizations are becoming more and more innovative in creating ways to do so without impacting their workforce directly.  Members will be discussing this topic at another upcoming IMF Web Forum.  You can visit the event page for this Web Forum for details.