By continuing to lay off workers, companies may be making a costly mistake.

• Although the economic data has shown positive signs, such as decreasing inflation, low unemployment, and no recession, the new year has begun with an increase in layoffs from various large companies.
• But not every layoff is being conducted in a similar way.
• Some companies are cutting jobs all at once, while others are eliminating jobs gradually.

Although the economic data has shown positive signs, such as decreasing inflation, low unemployment, and no recession, the new year has begun with layoffs. In January, Citigroup announced it was cutting 10% of its workforce, while Google cut hundreds of jobs across its engineering and hardware teams. Amazon also reduced headcount in its Prime, Twitch, Audible, and other entertainment divisions. Additionally, the NFL has offered voluntary buyouts to at least 200 employees.

Not all layoffs are the same. Some companies, like Spotify and Discord, have recently announced mass purges, cutting their workforce by 17% or more. Other companies, like HP and Google, have announced smaller layoffs over a longer period of time.

Is one way of reducing headcount better than the other?

Peter Cappelli, a professor of management and director of the Center for Human Resources at the University of Pennsylvania's Wharton School, argues that incremental layoffs can have unintended consequences when a company tries to avoid immediate bloodletting.

Cappelli stated that the idea of panicking people and causing them to quit would result in a significant loss, making it an incredibly bad idea.

According to Cappelli, the current wave of layoffs is not due to economic conditions but rather because companies are under pressure from investors to reduce expenses. Although the cost-cutting measures may make investors feel like the company is taking action, Cappelli believes that these layoffs will not have a positive impact.

Layoffs are difficult to manage, but the way they are done is as important as the reason for them. According to Harvard Business School professor Sandra Sucher, author of "The Power of Trust: How Companies Build It, Lose It, Regain It," mass layoffs are more challenging to manage than layoffs in stages.

Big job cuts present big challenges

Managing retention, layoffs, and work redistribution becomes more challenging with larger mass layoffs, as stated by Sucher.

Nokia had to lay off 18,000 employees across 13 countries because they were losing the phone market. However, she stated that doing so because of high interest rates is not a strategy.

According to Stephanie Wernick Barker, president of the Addison Group’s Mondo Staffing, many companies over-hired during the pandemic. The recent layoffs, particularly in the tech sector, are a correction of that.

From 2020 to 2022, the boom of hires was due to access to talent, remote capabilities, and lower interest rates on capital. Now, the question is 'did we over-invest?'

Wernick Barker stated that she has not yet laid off any of her 200 full-time employees and takes every measure to prevent it, such as reassigning staff to other tasks if their current job's return on investment decreases.

Avoiding anxiety among employees

However, the incremental approach to layoffs also carries risks.

Spotify's layoff announcement in December was the company's "third time to the well," which has caused anxiety among employees, said Sucher.

There are alternative methods to reduce the workforce without resorting to layoffs, such as attrition, voluntary buyouts, and hiring freezes.

Ayman Al-Abdullah, the former CEO of software startup company AppSumo, now coaches other executives and believes that layoffs should not be a business strategy. He argues that many layoffs are a result of companies overspending on hiring ahead of anticipated growth, and when that growth doesn't occur, they must cut costs.

Al-Abdullah, who led AppSumo from 2015 to 2021, stated that he prefers a hiring approach to meet demand. Despite the pandemic's pressure, he refused to cut anyone and the company grew from a small team to 100 employees during his tenure.

If a company grows too large, Al-Abdullah considers layoffs in stages as the least appealing option.

Al-Abdullah stated that it is inhumane to treat employees poorly; a more compassionate approach would be to drop the axe and make deep cuts in one go.

According to Al-Abdullah, announcing layoffs in stages can shift the risk of the company onto employees, and he believes that HP has no reason to announce layoffs years ahead.

Al-Abdullah explains that when employees lose trust in management, the A-players are the first to leave, followed by the B-players, leaving only the C-players. This creates a negative spiral at the company.

Jennifer Dulski, CEO and founder of Rising Team, a Palo Alto, California-based workplace software platform, has previously held leadership positions at Yahoo and Google. She agrees with Al-Abdullah's view on staging layoffs.

Dulski said that one of her biggest regrets was not being able to make the cuts all at once, which she believes would have been easier on the company and helped build trust. She supports the idea of making deep cuts in one fell swoop, but acknowledges that CEOs like Spotify's Ek may have good intentions when they drag out their cuts.

Dulski stated that most CEOs underestimate the actions required and generally aim to minimize harm to people.

Dulski finds it puzzling that companies that announce their layoffs years in advance keep workers looking over their shoulder longer. However, she explains that for global workforces, some countries, especially in Europe, require a far longer notification period for layoffs, so they may try to stay ahead of local laws.

According to Dulski, the optimal approach is to conduct layoffs all at once. This is because each time layoffs are carried out, they have a detrimental impact on employees, particularly those who remain. A Leadership IQ study reveals that the majority of employees who endure a mass layoff experience a decline in productivity.

Dulski stated that layoffs have a significant impact on employee morale and engagement, causing fear among employees about their job security.

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