The Quest for Better Layoffs

 
 
Professor Sandra Sucher wants to change the way business thinks about workforce reductions. "We want people to learn about the forces they unleash in the firm when they institute layoffs."
 
 
by Carmen Nobel

A few years ago, Sandra J. Sucher received worried emails from two MBA students in her first-year Leadership and Corporate Accountability (LCA) class at Harvard Business School. Elana Green (now Elana Silver) and David Rosales (both HBS MBA 2010) had been troubled by a class discussion about a company ravaged by a massive fire.

"They were very upset," says Sucher, the MBA Class of 1966 Professor of Management Practice and Joseph L. Rice, III Faculty Fellow at HBS. "What upset them was how cavalier they thought their classmates were, regarding the lives of the employees. They were convinced that their classmates had no idea what it would be like to be in a small town in New England, and to no longer have a source of employment."

“We want to change the way layoffs are done”

Those emails have led to a multiyear study on the impact of layoffs. The project began with video case studies of laid-off workers, as well as a couple of technical notes for students—one focusing on best practices for managers as they consider workforce reductions; the other on the overall effects of layoffs. Case studies on individual companies' best practices in layoffs, downsizing, and workforce flexibility have followed, including a new case about how Honeywell weathered the Great Recession. The next step of the research will involve interviewing managers who have conducted layoffs—or who have found alternatives to them. Sucher is also working on a prescriptive book for managers with HBS Research Associate Susan Winterberg.

"This isn't just an academic interest for us," Sucher says. "We want to change how people think about this topic. We know there are sound and legitimate reasons why companies turn to layoffs—to respond to strategic shifts, add new skills, and pursue market changes. And leaders need ways to respond to business cycle changes. We want people to learn about the forces they unleash in the firm when they institute layoffs. We want to change the way layoffs are done."

The Case Of The Malden Mills Mensch

The case study that prompted the layoffs project, Malden Mills, describes how a leader handled a disastrous event:

Two weeks before Christmas 1995, a fire destroyed three factory buildings at a textile company, one of the largest employers in the already economically depressed town of Lawrence, Massachusetts. Nobody died, but some 3,100 employees were displaced. Company president Aaron Feuerstein immediately announced plans to rebuild the company—and to keep all the displaced employees on the payroll in the meantime. The media hailed him as a mensch. But in making sure the new construction would meet the highest quality and liability standards, Feuerstein ended up spending more money than he had. And the company went bankrupt.

View VideoA middle-aged worker whose job was replaced by automation reflects on how the loss changed her life.

As with many HBS classes, Sucher's students shared differing opinions. "Two- thirds of them thought the guy was an idiot, that he should have just sent the jobs to China, where he was going to build a factory anyway, or [to] Mexico, where the costs would be much less," Sucher recalls. "The other third admired the guy for understanding the gravity of being a major employer with deep roots in the community."

But Green and Rosales thought the conversation lacked a key element: a consideration of how layoffs might have devastated the factory employees at Malden Mills. They saw it as a lack of empathy.

"They didn't seem to understand the impact that layoffs could have on families who didn't have a lot of resources at their disposal," says Elana Silver, now a talent development consultant at State Street, a Boston-based financial services company. "For most of my classmates, and for myself, getting laid off would be a temporary hardship. We wouldn't face the domino effect that many people face when they don't have savings accounts or other resources that my classmates and I had."

Emotional Costs And Worst Practices

And so the students teamed up with the professor on a research project that would look into the effect of layoffs on companies, on communities, and, most of all, on employees. "The initial drive was to build empathy around the decisions that are so core on a human level," Sucher says. "They wanted people to learn about that."

Green and Rosales interviewed several people who had been laid off from a job—or several jobs. They then introduced the best candidates to Dave Habeeb and Ruth Page, of HBS's Educational Technology Services, who went on location to film interviews with the laid-off employees and their families. The resultant videos have been taught in the required LCA course since 2011. And Sucher believes they have served their purpose of helping students understand both the financial and the emotional toll of layoffs on workers.

In one video, Kelly White, a print technician, talks about the day she and her job were replaced by a piece of $18,000 equipment. "One of the very first thoughts that I do remember was, I am not needed," she says. "When I realized that automation had done away with my job 15 years sooner than I thought it ever possibly could, I realized that it's not that I'm not any good, it's that my skills aren't."

In another, Barbara Mathieson recalls getting laid off from a job in print production. The news surprised her because she had performed a singular role, vital to operations. Three days later, she received a call from an HR manager. It seemed that the company had laid Mathieson off without anyone in management actually knowing what her job had been. "I thought that was kind of weird," she says. "How do you lay someone off before you know what they do?"

The HR manager explained that the production process apparently didn't work without her, which Mathieson had known all along. The manager then asked the freshly laid-off worker to come back to the office—and teach her former job to someone else.

"Imagine receiving a call on Monday saying, 'You know, we don't know how to say this, but when we laid you off, we really didn't understand what you did…but now that we understand what you did, we'd like to pay you to come back and teach someone who's still employed how to do what you did, because what you did was actually really important for the company," Sucher says. "If I had to rank-order bad situations handled poorly, that situation would rank right up there."

Mathieson's story is one of many that have evoked dropped jaws among Sucher's students.

"When we show the videos in class, it's in an atmosphere of complete and utter silence," she says. "People are just taking in these stories. And something happens to them. One student had worked as a financial analyst before coming to HBS , and he said, 'I can't tell you how many layoffs I have recommended in the course of my short career. ' He said, 'I feel terrible now.' Granted, the same student was quoted later that day in a Strategy class, recommending layoffs. So I don't know how long lasting any of this learning is. But it certainly can give students a chance to put themselves in the shoes of people who had this happen to them."

The research team also interviewed high-level executives who have been laid off during their careers. "We wanted students to hear stories from people who were more like them, too, whose careers were similar to the careers the students were pursuing," Sucher says.

So the video series includes people like Hemant Luthra, now a top executive at Mahindra CIE Automotive in Mumbai, who is a 1994 graduate of the Advanced Management Program at HBS. In the video Luthra talks about losing a marketing position at IBM early in his career, due to a disagreement between the company and the Indian government. "IBM left the country in a huff," he says. "And there were those of us who had thought we were stars, who were suddenly looking for jobs."

Luthra rebounded into other jobs, holding C-level positions at several multinationals. In 2001, 35 years after losing the IBM job, he took a gig as CEO of the broadband division at Enron India. Enron collapsed later that year, and along with his job, Luthra lost much of his retirement savings. "There was this macho message that if you really want to be part of this family, you must put all of your savings into our 401(k)," Luthra says, visibly angry. "They went bust and took 25 years of [my] savings with them."

Seeking Managers

In the latest stage of the layoff research, Sucher's team is looking to interview people who have conducted layoffs—or who figured out an alternative.

"We'll be focusing on individual experiences of the layoff from a managerial point of view," she says. "Did they bring people together to break the news, or did they do the layoffs one by one? What rationale did they provide to the employees? What kinds of benefits did they offer them? What kind of reactions did people have, and how did the managers handle those reactions? What happened inside the company after the layoff? Were there any surprises or hidden costs? How can the layoff process be conducted better in the future?"

To that end, Sucher has posted a listing on the HBS Working Knowledge Research Exchange, inviting managers to get in touch with her directly to share their tales from the field. Former newspaper editor and publisher Matt DeRienzo was among the first to respond.

"I had to eliminate more than 30 positions in 2014 and eventually volunteered to be laid off myself, so I've thought a lot about this topic and am interested in what the research will show," says DeRienzo. "Increasingly I feel like the way [a layoff] is handled can make a big difference for the people affected, for the organization left behind, and even for the profession itself."

About the Author

Carmen Nobel is the senior editor of Harvard Business School Working Knowledge.

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.
    • Anonymous
    A powerful topic, potently presented. The image of students'
    "dropped jaws" upon viewing real life testimonials inspires emotion in the reader. Kudos to Dr. Sucher for bringing the real life consequences of consultant-driven layoffs to the fore.
    • Anonymous
    I was especially touched by the Kelly White video in this article and love that such videos are being used to instruct HBS students.

    Kelly, if you are reading this, I want you to know your line about it not being about pride but about stewardship of your skills really spoke to me. You are more than a "supporting actress". You are a teacher and role model.
    • lemun yatu
    • Career Consultant, GEC CONSULTS
    Very great and contemporary issue within organisations.

    The impact of layoffs within an organisation is not only felt by the victims of the exercise, but also the Survivors. Apart from the constituted risks for the laid-off empoyees (Health, Psychological and occupational), the aftermath also could create what i called 'SURVIVOR SYNDROM', which will require managing, otherwise the performance of those who survived could be affected, either due to, insecurity, comraderi or mistrust for management.
    • Bill Flynn
    • CEO, Paeon Partners
    It seems to me that employment stability is something generally from the past. I'm sure some will work a long time at one organization, but most will not. In the past when work was in long supply and workers short, being laid off was entirely different than today.

    Blaming the management is appropriate, but unhelpful. Workers need to find collegiality with each other. Instead what exists today is more mistrust and alienation among co-workers. The old bowling leagues have even fallen out of favor.

    Additionally team building activities in the workplace are not reinforced beyond a single activity so they breed even more resentment and mistrust.

    What if team building were something management trusted and nurtured? What if team building were an ongoing activity? What if people at all levels were actually trusted and expected to be trustworthy?

    If this kind of environment existed in the workplace, then when a layoff was pending, the workers and management could actually work together to support each other in whatever was appropriate: retraining, skill building, job search even mutual support from the remaining workers for the laid-off. If this sounds like the behavior of old unions, you're probably right.

    So what? Isn't our collective success the objective? If my neighbor loses his/her house, doesn't that have a negative impact on me? Just because I'm not an hourly worker doesn't mean my needs are different from one who is. And let;s face it, management has forgotten its responsibility to build value by creating valuable work. The attitude that the same or more can be done with fewer people doesn't mean that make the company more valuable. The challenge is to make those workers more valuable by creating more valuable work for them to do.

    Guess what? They probably have great ideas for the next new products or services the existing company could provide and use them as creators and drivers.

    Industry has a responsibility to itself to build value beyond a bottom line, which is merely a statement of the past. The idea is to build value so fewer layoffs are needed and more hiring is the norm. This requires people at my level in other organizations to see their workers at every level as assets and not liabilities.

    This is a change in sensibilities.
    • P
    • Head of Finance, Global Bank
    One of my boss once told me, every employee in the bank should think and plan for the "What if I get laid off tomorrow"scenario. It was very powerful and got me seriously thinking about my homeloans, commitments, family etc and in about 6 months since he told me this, he himself got laid off. This is the harsh reality of life & it hit me even harder home!!

    Isnt it the responsibility of the organization to help the employees transit to other roles as they transit to better technologies ? Like employees dont consider staying in one company for life, companies have become pretty insensitive and impersonal about lay offs. This is a very insightful article and I am not at all surprised at the original & insensitive reaction of your students - hard to understand what it means till it hits you or probably your loved ones. Like everything else, layoffs may be an inescapable but can be planned with a heart and better executed most of the times.
    • Hugh Quick
    • Home, none
    I have always admired the realism of HBS. When I was there in 1954 most of the faculty were experienced businessmen. The article about redundancy seems to cast doubt on this realism. Often the alternative to 'redundancy' is for the employee to find that their salary or wages are no longer being paid, or turning up for work and finding that the door is locked. Losing one's job must be upsetting even with the confidence of youth, there are many stories of its devastating effect later in life.
    • Mary
    • HUCTW, Harvard
    Mathieson's a saint if she did what her managers asked of her. What I would have said in that situation is unprintable. It's not just a matter of managers being out of touch with the realities of workers' lives. In this case, the manager was an incompetent idiot who didn't understand the processes that they were supposed to be overseeing.
    • Soraya Dosaj
    • Librarian
    This is certainly a timely topic as downsizing, belt-tightening and consolidation continue in the workplace. The impact on 'survivors' is of particular interest to me. Personal experience has proven the great support that can be found in Google groups and similar online forums. When workers (esp. of a similar job classification) come together to share their experiences it provides great strength to the survivors. In my case what began as online group therapy evolved into actions that eventually lead to re-employment of many members who had been laid off.
    • James Lenihan
    • CEO, TreasuryPros
    What is the desired result? Most corporations act in their own best interest which is not always in the best interest of their employees or their shareholders. Layoffs or the preferred term, Reduction In Force (RIF) are the result of poor Leadership accompanied by either poor or non-existent planning. The desired result is to reduce expense as quickly as possible by terminating what most companies call their best asset, their people. The dead wood gets axed first, then it's the political hits and lastly it's survivor, the corporate version. A better way to Layoff is not to have to Layoff at all but that will take better Leadership and better planning along with excellent execution.
    • Gegzi
    • Senior Expert, Quality Assurance Affairs., Higher Education Institution.
    Labour layoffs are results of mismanagement or poor management of resources. Efficient and effective management of resources continuously introduces expansion and diversification programmes, and so avoids any layoffs. In fact, more labour force is needed with time lapse.

    Business cycles of capitalist economies can be easily controlled through hard thinking on good resources management.
    • Abdulai D Nyei
    • Accountant, United States Department of State
    We at the State Department are often concern of layoff and the frustrations that comes with it. There is not a succint way for keeping it straight forward then the analysi presented here in this article
    • NA
    • scientist, university
    There is no universal way to dress up such news. It is entirely dependent on the pain receiving the news. I should know i have been dumped twice. Once because of a takeover (small site of 100 closed) and one because of a site closure (about 2500 dumped). Both were the action of the same large corporation. In the first instance I was under 30 and it was no pRoblem in the second I was over 45 and had to move countries with family to find another job. I hated them for destryoying the life I had built especially because this company had billions in cash waiting to be used to buy another competitor (and no doubt do the same to a lot of its employees as well). The inexorable chase for profits only injures the workers. Layoffs are wrong however you do them.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    It is a fact that "Hire and Fire" is the halo which is constantly over one and all. We cannot take permanence of employment for granted. A hard reality leading to a variety of suffering to the laid off employee is very well described by Prof. Sucher. This is a critical subject not having any set solution. Managements have their own reasoning which too seems to be based on logic. Yes, there could be a compassionate handling of such situations but if these lead to the evaporation of the company itself (as a case reported by Sucher), it indeed would be suicidal for all.
    The best solution is for all to remain alert and be prepared for the worst by planning alternate strategies to secure their future. " Save enough for the rainy season" is one idea.
    • Anonymous
    These are painful times for many Americans as we have transitioned from a manufacturer based economy, which actually produced useful products, to a service based economy which merely consumes and produces nothing. So while all those cheap products Americans stand in line for on Black Friday are produced for pennies on the dollar in the global market many other Americans are standing in unemployment lines. We have safety nets in place right now for these affected employees but in case you missed it our national debt just surpassed $18 TRILLION dollars. Those nets are unraveling and where will our society be when they fall apart.
    • Harlyn Sianturi
    • Manager Assets & Risk Management, PT Kaltim Prima Coal
    Very good article about human touch on the reality of capitalism consequence, to lay off people when times are hard. It is a fact that big business sometimes do things not based on comprehensive considerations beeing given to the people where their life is broken. And sadly to say, that in the end most of the big guys end up in poverty, missing the mark after a short times lapsed later, leaving behind abandoned company in the cities. This article is very good food for thought. Thank you.
    • amar
    • blogger, http://amarnaik.com/
    being a student, i feel the class material give an insight how past has happened. But how an individual responds to the situation depends a lot upon his surrounding situation and his thinking process, which keeps on evolving based on various factors. Also I think a layoff is a painful process not only to the person who is getting layed off but also to the people who have pressure on them to choose among the team a person, whose services can be terminated.
    • Bobby Hickman
    • Air Traffic Control Chief Controller, Military
    I started not to post a comment, since they are moderated and selected based on relevancy and variety (probably meaning whether or not they support the author's agenda). I was not moved by Kelly's video. The fact that technology forced her into into a new field is a sign of a healthy economy. There are people in China, the U.S. and all across the world who are in much worse shape than Kelly and her girlfriend (both of whom appear very healthy). Just keeping employees around for the sake of keeping them around is does not make good business sense. Since America still has the highest income earners in the world, layoffs should not affect people they way they usually do. The problem is people like Kelly don't plan for worse, until it is too late. I notice the video didn't mention how much income her girlfriend contributes.
    • Jessica Wolfe
    • Research Associate, Harvard Medical School
    An excellent article and project. Finally, a look at both sides of a traditionally one-sided equation.