Navigating Downsizing: Layoffs and Alternatives

After a year marked by geopolitical uncertainty, rapid technological advances, and in anticipation of economic recession, companies across various industry sectors have been quick to announce layoffs as a default response. While layoffs may seem like a logical cost-cutting measure in times of market turbulence, experts question their effectiveness. “We have seen massive layoffs over the past months. However, unemployment in the US is at 3.5%, not a high number. These layoffs happen asymmetrically across industries,” said Mauricio Cortes, Sales Director, Voxy.

Overwhelming evidence, including an article in Harvard Business Review (HBR), suggests that layoffs can hurt company performance, employee engagement and long-term profitability. As a result, industry leaders are urging companies to explore alternative strategies for managing their changing workforce needs. By involving personnel in the process and providing support and certainty, businesses can navigate this challenging economic landscape without undermining their viability.

Norma Saenz, HR Director, AstraZeneca, emphasized the importance of a well-organized layoff process that considers both the company's goals and the well-being of the personnel involved. She highlighted that clear communication is key in ensuring certainty for both those who are laid off and those who remain at the company: “Something very important for this topic, in addition to how you support those who leave, is: What do you do with those who stay?”

Experts concur regarding the importance of communication to drive a process that is highly sensitive for talent. “Communication is integral in times of uncertainty. Therefore, employees must be involved in the process so that they can be part of the solution,” said Analaura Antuna, CHRO, Cotemar.

The decision to carry out layoffs is often driven by the perceived need for companies to cut costs in response to economic and market pressures. The COVID-19 pandemic has disrupted supply chains, reduced demand for goods and services, and caused significant economic uncertainty. In addition, geopolitical uncertainty ignited by the Russia-Ukraine war and souring trade relations between the US and China have added to the challenges faced by many companies.

Antuna stresses the importance of understanding the true reason behind layoffs to effectively address them. In the event of a recession, Antuna highlighted that this is a cyclical and temporary phenomenon, dependent on its underlying causes. "We need to examine the reasons that motivate the possibility of layoffs and there are many options to navigate them. The most important thing is to anticipate and plan for where the company is going," she said, noting that a strategic vision can facilitate negotiations to identify alternatives to layoffs.

At the same time, rapid technological advances have led to the displacement of some jobs and the need for new skills and talent. Against this backdrop, companies may feel compelled to take action to reduce costs, and layoffs can seem like a logical response. However, the costs of layoffs may be greater than the benefits, particularly in the long term. “We should always prioritize treating people well and exhaust all resources. There are different alternatives, from negotiating payments or benefits to moving personnel,” said Erick Díaz, HR Director, Atento.

He also highlighted different approaches to carrying out layoffs. Díaz emphasizes that while it can be challenging to determine whom to let go, utilizing "performance assessments" can be a valuable tool and should be as effective as possible. Additionally, these assessments should include a long-term review. "Seamless performance assessment is an important element in the layoff process,” adds Díaz.