The Human Side of Layoffs: How Companies Can Prioritize People and Culture Amidst Uncertainty

The goal of this episode is to explore how organizations can navigate through these difficult decisions and prioritize people and culture. If you haven't been affected by a layoff yet, chances are you'll eventually find yourself affected by one. You may avoid one, or maybe even run one. In any of those cases, today's discussion will help you.

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Episode Show Notes

Layoffs are not just big business decisions. They are profoundly personal for both the individuals who are affected directly and those who remain after them. The goal of this episode is to explore how organizations can navigate through these difficult decisions and prioritize people and culture. If you haven't been affected by a layoff yet, chances are you'll eventually find yourself affected by one. You may avoid one, or maybe even run one. In any of those cases, today's discussion will help you.

Episode Links and Resources
-Layoffs That Don’t Break Your Company
-Workers Feel Survivor’s Guilt as Pandemic Continues and Layoffs Deepen
-6 Strategies to Curb the Impact of Survivor's Guilt in the Workplace
-Roaring Out of Recession
-Changes in the Work Environment for Creativity during Downsizing
-No Security: A Meta-analysis and Review of Job Insecurity and its Consequences
-The Paradox Of Layoffs: Engagement Drops When You Need It Most
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Tech layoffs in 2023 are already one-third of last year’s number and it’s only January

Episode Transcript

0:00:01.9 Producer: Welcome back, Culture By Design listeners. It's Freddie, one of the producers of the podcast, and today's episode is on the human side of lay-offs, how companies can prioritize people and culture amidst uncertainty. Lay-offs are not just big business decisions, they are profoundly personal for both, the individuals who are affected directly and those who remain after it. The goal of this episode is to explore how organizations can navigate through these difficult decisions and prioritize people and culture. As always, today's show notes can be found at leaderfactor.com/podcast. Thanks again for listening, and thank you for your reviews. Enjoy today's episode on the human side of lay-offs.

0:00:47.5 Junior: I'm Junior and I'm here today with Dr. Tim Clark, and we are going to be discussing a sensitive yet crucial topic, surviving a lay-off, and understanding the cultural opportunity that comes along with it. If you haven't been affected by a lay-off or you don't feel like it's timely, don't click away just yet, listen up, because chances are you'll eventually find yourself affected by one. Maybe you'll avoid one, or maybe even you'll run one. In any of those cases, I'm confident that today's discussion will help you. Tim, how are you doing today? 

0:01:24.7 Tim: Well, I'm doing well, but as you say, Junior, this is a sensitive topic. It makes me realize lay-offs are big business decisions, institutional decisions, but they're also profoundly traumatic personal experiences. I'm thinking about myself. The first job that I had outta college, after a year and a half, I was laid off, and that has stayed with me ever since. It was a stinging experience. It left period effects. I can bring it to memory. I can recall just all of the turmoil and the stress that it caused. And so this is a very sensitive topic, whether you're on the deciding end, the administering end, or the receiving end. And so hopefully we can handle this with the appropriate level of sensitivity, but it is a topic that is very much worth discussing so that we can perhaps even help institutions that are confronted with this issue.

0:02:25.2 Junior: Well, I appreciate you bringing that up because today we'll be sharing a lot of data at a pretty high macro level, and we don't mean to gloss over any of the personal impact in doing so. So we recognize that it is a personal and a sensitive thing, especially for those who have been recently affected. So we wanna keep that in mind. So thanks for that comment, Tim. So in this episode, we're going to explore how organizations can navigate through a lay-off, seize the opportunity to reshape their culture and emerge perhaps even stronger. There will be a lot of data shared today and we'll link the most relevant sources in the show notes. So keep an eye out for that if you wanna double check on any of these things. And note that the conversation is broader than just, "Okay, lay-off, what now?" But rather, what precedes a lay-off ? Are they necessary and how you can really, really mess them up? 

0:03:14.8 Junior: So we wanted to start off with a story. In 2008, the global financial crisis hits very hard, and many companies are struggling to stay afloat. One of these companies was Starbucks. Many of you know Starbucks. It's hard not to. It's a household name and an absolute giant in the coffee industry. So in response to the economic downturn and declining sales, Starbucks leadership team, Howard Schultz was CEO, had to make some tough decisions about the company's future. So July, 2008, Starbucks announced plans to close 600 underperforming stores just in the United States, which ultimately led to the loss of almost 12,000 jobs, that's a lot of jobs. And this decision wasn't taken lightly, Schultz emphasizes the need at the time to refocus on the company's core values and culture to weather the storm.

0:04:07.1 Junior: So notice that core values and culture not refocus or rebalance of books. So Schultz recognized, and I'm sure others are involved in this process, that the crisis was partly due to the company losing touch with its roots and its customers. And so Starbucks took several bold steps to reinvigorate the culture. There are a few things that they did. Listen to this. They closed 7,000 stores for hours to retrain baristas on making the perfect espresso. How about that? You just closed 6,000 stores permanently and then you shut down 7,000 more for a few hours to focus on making the perfect espresso. Additionally, they wanted to connect with their customers and offer a very personalized experience. So they need to start doing some more training. Schultz gathers 10,000 store managers from around the world for a conference in New Orleans focusing on leadership culture and community engagement. 10,000 store managers.

0:05:10.2 Tim: Yeah, it's amazing.

0:05:12.1 Junior: So how expensive is it to get 10,000 people globally together on site in a single place? That's unbelievable. And you're in the midst of cost cutting. So let's say your $2,000 travel expense conservatively per person, that's $20 million just to get people there and back. That's incredible. So during this get together, they do a day of community service where the participants helped rebuild homes destroyed by Hurricane Katrina to reinforce Starbucks commitment to social responsibility. Then they launched the My Starbucks Idea platform, which allows customers to share their suggestion for products. So they do a whole bunch of these things lined up one after another. And these moves combined with the tough decision to close their stores and lay-off those thousands of employees, ultimately helps Starbucks regain its footing. So you fast forward, the company successfully weathers the financial storm and emerges with a renewed focus on its core values and culture.

0:06:16.7 Junior: So by 2011, Starbucks was once again reporting strong sales growth, and the company's stock price was on an upward trajectory. So in 2009, guess what they did in sales? $9 billion. In 2011, on the other end, they do $12 billion. Now, fast forward another decade last year at 2022, guess how much they did? $32 billion. So we'll see even later in the data in today's episode that that's an anomaly. It's against all probability that they emerge that strong, their sales performance over time is incredible. So, we wanted to use this as a jumping off point for this conversation about navigating lay-offs and challenging times by recommitting to culture and values. If organizations can engage their employees and their customers through those times, they can come back stronger and more resilient. What do you think about that story, Tim? 

0:07:17.0 Tim: I think we need to go back because if you've heard this story, there's something that is going to get your attention and it will puzzle you. And it certainly did me the first time around. And that is we are shutting down thousands of stores and we're going to retrain the baristas on making the perfect espresso. So at first blush, you may think about that and think, "What? That's trivial. What are we doing? We're laying off a bunch of people. We're closing a bunch of stores. Why are we retraining our baristas in making the perfect espresso?" So the question, so we're confronted with this question, "Is that trivial or is that central?" And you can't understand this intervention, you can't understand this series of events here without realizing that this was aimed at culture. It wasn't merely a reduction in force to adjust the cost structure of the organization.

0:08:26.8 Tim: It wasn't that. If you look at it through that lens, you're not going to understand it. It really was a focus on the culture in an attempt to reclaim the DNA that made Starbucks create from the beginning, that fueled their growth and they were losing, they were losing that. They were losing their distinctiveness, they were losing their customer centricity, they were losing some of those attributes. They were becoming diluted in the culture, and then they were just washing away. So I hope that gets everyone's attention because this is not the case of a normal reduction in force, a normal lay-off, as is evidenced by the results that you just cited Junior.

0:09:14.6 Junior: Part of what makes this an interesting story is that it's the exception to the rule.

0:09:22.5 Tim: It is.

0:09:22.6 Junior: The rule is we make the reduction in force and we continue business as usual. And we think that the only thing that's changed as a consequence of the lay-off is decreased wage expense. Like, "Okay, we're going to address the cost structure. We take a slash here and then we just go back to work tomorrow." And I know that that's oversimplifying it, but it's the way that many organizations approach it in reality.

0:09:43.7 Tim: Pure economics.

0:09:45.1 Junior: Pure economics. And there's this cultural component that we're going to talk about today, which can help you and it can hurt you, let's put it that way. Let's talk some numbers. Lay-off stats. These are interesting. In 2022, there were 15.4 million lay-offs just in the United States alone. In March, I was looking at this, this is recent data of 2023 globally, just in tech, there were 65,000 lay-offs across 112 major companies. How about that? Now these two, these next two I had not heard before, 28% of Americans have been laid off in the past two years alone.

0:10:24.6 Tim: It's an incredible number.

0:10:27.7 Junior: Then, 40% of Americans have been laid off or terminated from a job at least once, 40%. So chances are pretty good that if you're listening to this podcast, you've been affected somehow by a lay-off or a termination at least one time. In January, 2023, the number of lay-offs equaled the total number of lay-offs that occurred in the heart of the 2020 pandemic. So people think, "Okay, pandemic is this era. It's this two year time period, and it's over. It's done." But January of '23, we're feeling some of the effects. Be they causal or not. It's interesting to see that we are still dealing with this, this tale of consequences that we probably didn't anticipate, or at least many didn't. So since 2020, it seems to me that we've been breaking lay-off, unemployment, quit records, seemingly left and right. So if there's a time to publish an episode about lay-offs, it's probably now. So these numbers got our attention and we said, "Hey, we should probably say something."

0:11:31.0 Tim: Well, Junior, since the pandemic we've had all kinds of economic dislocation. The great threat is stagflation. The combination of inflation, high inflation, and high unemployment. We're trying to ward that off. Central banks are pulling the levers of monetary policy and they're raising interest rates and they're doing everything they can. In spite of all of that though, we don't know, they couldn't predict where we are today and we can't predict where we're gonna be tomorrow. The best macroeconomists in the world could not predict the way that economies responded during the pandemic. They couldn't predict it. And we're in the same situation here. We can't predict what's going to happen over the next six months. Are we gonna get our arms around inflation? Can we maintain positive economic growth? We don't know for sure. No one can tell us the answer. That's the environment.

0:12:29.1 Junior: Here's a macro level trend for you. Lay-offs have been increasing steadily since the 1970s. So we're talking about a three-year period. Now, let's talk about a 50-year period. In 1979, fewer than 5% of Fortune 100 companies announced lay-offs. In 1994, almost 45% did, a 45% increase between those years, '79, '94, and then a McKinsey survey of 2000 companies found that from 2008 to 2011, 65% resorted to lay-offs. So today, lay-offs have become the default response to any uncertain future marked by rapid advances in technology, tumultuous markets, intense competition. You mentioned monetary policy. There are all of these things going on that contribute to the volatility of our environment and the dynamic nature of our environment. And so the lay-off lever is one that companies are often pulling by default when they're met with an environment like the one we're in now.

0:13:33.9 Tim: That's right.

0:13:35.0 Junior: So it's interesting to see that that has become more common over time, that we're pulling that lever more today than we did 50 years ago. And I don't know that there's any indication that that's going to change.

0:13:47.4 Tim: No, I don't think so.

0:13:48.8 Junior: I think, you and I were talking about this offline about just the growth path for organizations now is different than it was in the past. Access to capital is easier than it's ever been. Capital flows are much more dynamic than they have been in the past. And so organizations are growing differently than they have in the past, often through lump sums of cash that they need to go and deploy quickly. Whether they think they need to go and deploy quickly to get a jump on whatever it is they're doing, that shows up differently in different markets. But that's a trend that I think is pretty interesting.

0:14:20.9 Tim: Well, Junior, as you said, access to capital was easy, was a lot easier, it isn't now. That changed pretty rapidly.

0:14:28.3 Junior: That's for sure.

0:14:29.7 Tim: And so say you're a venture backed entity and you've got a growth path and a plan that takes you out three to five years, and you've got a proforma that says, this is the amount of cash that we're gonna use, and these are our projected revenues and all of that. Well, that all changed. And in many cases, we have to acknowledge that when organizations capitalize and they set on a journey to build a company, build a business, they often don't use that capital very wisely. They over-hire, they're not careful, they're haphazard in the process. And then when the fundamental conditions change in terms of access to capital in terms of how their market is performing, then what do we see next? Lay-offs. We've seen that over and over and over again just in recent months with smaller organizations.

0:15:25.5 Junior: I've been amazed at the pattern and then the messaging in the PR pattern as well, which says, "Hey, we absolutely crushed hiring in '20 and '21. And in 2022, we realized, "Okay, we over-hired." How many times did we hear that? And it's amazing to me that we were blind to that for such a long period of time, and yet it's such an overwhelming pattern. And so organizations, I think, are hopefully picking up on that pattern, and hopefully we can prevent some of that type of overhiring in the future. So let's establish this. Lay-offs are a part of life. To put it away. It's a part of free enterprise. It's something that's happened from the beginning of the inception of work. At some point, we hired too many people to see the fields or cut the road and we sent them home. It's not something that is new and it's not something that's going to go away.

0:16:17.0 Junior: And because they've been around for so long and we know what they are as reduction in force, they have some first order consequences that are pretty obvious to what we think about. We have fewer people working. That's the first order consequence. We've reduced wage expense, we've adjusted our cost structure. But then there are some other things that happen, as either first order unintended or second, third, fourth order consequences that we don't pay a lot of attention to that can come back to bite us. Some of them can be good, most of them are bad. It's also worth saying that not all lay-offs are created equal. There's a spectrum of quality of lay-offs, both in process and in motivation. Those are two variables to look at when you're looking at a lay-off. What's some motivation for the lay-off ? And that is its own spectrum of quality.

0:17:09.6 Junior: They can vary and range from pretty good to pretty bad. And then process, the actual process of the lay-off itself has a spectrum of quality. And so you could even put it in a little four box and show the combinations of process and motivation. But that's important because we don't wanna just lump all lay-offs into a single bucket. And what we're also not doing in talking about lay-offs today is making any sort of judgment, just making some observations and hopefully sharing some things that might be useful. So lay-offs have a tremendous number of unintended consequences. And these are some data that we wanted to share that most people probably don't know about. So researched by Magnus Sverke and Johnny Helgren of Stockholm University, and Catarina Oswald of the University of Canterbury found this after a lay-off survivors, what they call them, which is interesting term, experienced a 41% decline in job satisfaction, a 36% decline in organizational commitment, and a 20% decline in job performance. How about those numbers, Tim? What do you think about those? 

0:18:16.6 Tim: Incredible. I think we have to acknowledge that whenever there's a lay-off that rocks the organization and it knocks it into a state of disequilibrium, that's what's happening. The organization has been knocked out of its orbit, and so many of the assumptions and assurances that we worked under, that we lived under are now brought into question. So what is the commitment to people here? What is the view of human capital? Where are we going? All of that is now thrown into disarray. And so all of that is measured in these survey questions. It's pretty amazing. So I just think that wherever we are, if we're in a position of leadership and we're contemplating a lay-off, we have to recognize that we're gonna shock the system. We're going to knock it into disequilibrium, and there will be negative unintended consequences that accrue based on that decision, regardless of why we're doing it and how we're doing it, regardless of motivation and regardless of process.

0:19:27.0 Tim: Now we can talk about what the right motivations should be and what a good process looks like, but even regardless of that, we just have to know going in that we are shocking the entire system, the organization is an organism, and you are inflicting pain, you are inflicting trauma and an enormous amount of distress on the organization.

0:19:53.6 Junior: So here's a second order consequence that we may not pay attention to, is voluntary quits, post- lay-off. A lot of high performers will transition out of the organization through voluntary quits when they see the volatility and when they see the pending workload, and this is interesting paradox, because declines in engagement and performance, those declines we talked about, 41% in job satisfaction, 36% in organizational commitment, 20% in job performance, those declines are coming at a time when the demands on that workforce are greater than they were before the lay-off, so we now have more to do with fewer people, so the work load as it gets re-distributed becomes more than it was before, to support and lead efforts to navigate the new economics, the new performance metrics, the new... Whatever it is that we've changed, these people have to pick up the work that the terminated people left behind. And so if the employees now are less engaged, they're distracted, they're discouraged, they're overburdened, they'll probably resist doing more, and the organization will probably splutter. It's unreasonable to expect that you shock the system in that way and then have increased engagement and performance all else equal.

0:21:18.5 Junior: That's I think one of the most fundamental assumptions that we need to challenge, and when you say it out loud, you put it on paper and you look at it, it's obvious, of course, that's unreasonable, we can't expect that. But that's often in reality, what we're saying, if we're not saying anything else to the organization.

0:21:36.3 Tim: Think about the cynicism that ensues with a lay-off when people look around and say, "I think they're simply wanting to do more with less. They want us to make bricks without straw, that's what's going on here." If that's the conclusion that employees come to, that it's pure economics and we're going to make you do more with less, and they feel a sense of exploitation, it's not going to go well. I remember thinking about doing a lay-off when I ran a firm years ago, and it's such a sensitive situation, we had an operating unit that was hemorrhaging, it was bleeding pretty bad, and so we closed down an office and we were thinking about a lay-off. But in the end, we decided to capture attrition rather than do the lay-off because of the net impact to the workforce, to the culture, to the organization. Now, we can't say what the right decision is in your case, if you're contemplating this, but we have to be so careful because there are unintended adverse consequences, and the organization will feel that. It's not going to be easy.

0:22:48.7 Junior: There's a body of work that has to do with what's called survivor's guilt, and this is what drives at least some of that disengagement and performance drops. So survivor's guilt is when someone or a group of people experiences a loss and you didn't, it's a sense of guilt associated with surviving a situation incident or event while others didn't. I read some very interesting research on maritime survivor's guilt, fascinating if you ever wanna go down a rabbit hole, but it's a type of PTSD, and in this case, for our purposes, it's often called Workplace Survivor Syndrome, and it bleeds into some other interesting statistics, so work-related stress, which certainly is contributed to by this type of environment, cost American employers an estimated $300 billion annually in absenteeism, turnover and lost productivity. So the reason I share that is because we're aiming at cost reduction, that's what we're aiming at, that is the objective in many cases of a lay-off, not necessarily, but in many cases. And so, as you said, you evaluated this in your case with this business unit, that it was not going to be worth it, you were going to save some dollars up front, but there were going to be some other things monetary or otherwise that would have cost more.

0:24:13.6 Junior: So walk me through that math a little bit more Tim, what are some of those other things that in that scenario you are considering, what were the types of conversations you were having, what ultimately led you to make that decision to just capture attrition? 

0:24:28.1 Tim: Well, you're looking at the engagement and the productivity of everyone in the organization, you're looking at... So if you do a lay-off, you're trying to project the consequences and the impact, and so you have to think through that, and it's non-economic logic, you can put some assumptions to it in terms of productivity, in terms of engagement, in terms of retention, in terms of revenue, you can make a set of assumptions, and you should and you have to do it that way, but it's not easy. It's so much easier to look at labor as a line item in your budget and then say, "Okay, we're gonna take a 15% reduction," you know exactly what that means, you know what that translates into in terms of cost reduction, you know what your projected profits are going to be based on very simple math. We're not talking about that. We're talking about the overall impact on the organism, and we're talking about maintaining the dignity of every individual and opportunity, as much opportunity as possible for every individual. And so I think if you're thinking about a lay-off, you need to go back and you need to challenge your assumptions very rigorously, and you need to think about another scenario to get there.

0:25:57.8 Tim: I think that's just something that you have to do as a matter, of course, before you pull the trigger on a reduction and force.

0:26:06.0 Junior: Love it.

0:26:07.5 Tim: Well, let me give you another example. So you look at the reductions that have been done, the lay-offs that have been done in recent months with the big tech companies. Well, for example, you take Professor Jeffery Feffer at Stanford, he believes that those tech companies, after the first one, that the rest of them are engaging in copycat behavior. So it's not about the reduction in force, it's about the optics of the reduction in force. Are we trying to manage Wall Street and the expectations? Is this an offering? Because most of these firms have taken a massive hit in market capitalization over the last few months, they've lost hundreds of billions of dollars in value that has vaporized, but is it really a substantive step to take out 10000 people? Is that really going to make a material difference to the cost structure of the organization? I'm not going to render a judgment, but it's just interesting that sometimes our motivations are... They vary.

0:27:15.5 Junior: They vary.

0:27:16.4 Tim: When it comes to a reduction in force.

0:27:17.9 Junior: They do. So here's a stat, where I talked about voluntary quits a few minutes ago, just a 1% workforce lay-off can result in a 31% increase in voluntary turnover. How about that? So think about the turnover that's happening after the lay-off, that's voluntary, and think about the quality of that turnover, those that have the mobility are probably some of your higher performing employees, probably some of the more competent talent, and if that's the type of talents going to be turning over after just a 1% reduction, you really have to think twice. Because if you look at just wage expense and you think you're gonna make a 1% cut it's not that simple. Here's another one that I thought was interesting, cutting of employee recognition programs, that's one of the first things to go if we're trying to increase our austerity. So cutting recognition during crisis can lead to a 49% decrease in engagement and 20% higher intent to leave the organization. I wanna share two more. A study of one Fortune 500 tech firm done by Teresa Amabile at Harvard Business School, discovered that after The Firm cut its staff by 15%, the number of new inventions it produced fell 24%, so I call that out for innovation. That's fascinating.

0:28:34.6 Junior: Organizations can become less innovative, and then they did some more research at Auburn and Baylor and University of Tennessee, found that companies that have lay-offs are twice as likely to file for bankruptcy as companies that don't have any. That's interesting too.

0:28:51.1 Tim: That's amazing.

0:28:51.2 Junior: So you look at longevity of an organization and its correlation to the propensity to lay-off. So I think that these statistics are fascinating, and what they're telling me, what I'm taking away from this entire section, is that there are economic consequences of a lay-off, which are fairly straightforward in the first order, then there are also economic, but cultural consequences that our first, second, and third order. And put in basic terms, we weight too heavily or over-emphasize the economic side of the equation, and under-value and underweight the cultural side of the ledger. So all of this is to say, We need to spend more attention on the cultural impact of these decisions, both in the analysis and in the execution, so if we find ourselves in the scenario where we're thinking about a lay-off, Okay, we need to weigh those cultural variables very heavily. And then if we proceed with that lay-off, we need to have our ducks in a row when it comes to what are we going to do now pertaining to culture? 

0:30:02.3 Tim: So here's the line of thinking, Junior, that every executive contemplating a lay-off should run through, and that is, if we do a lay-off the operating assumption is that this will create a crisis of faith in the workforce, based on the employer-employee compact, what is the nature of our relationship is it just transactional, and therefore what will be the knock-on effects, the multiplier effects that come out of the lay-off, that's the logic that you need to go through and you need to make some assumptions, and those assumptions shouldn't be conservative.

0:30:42.8 Junior: No, you're right, they should be very generous. So we need to ask a few questions in that scenario, and Tim talked about a few. There are a bunch of things that precede that lay-off scenario as well, and I think we would be remiss to not call those out, and one of them is that if they're in the organization and have the potential to be laid off, then you hired them, and so it follows the question, Should you have hired them in the first place in terms of talent, in terms of capital, in terms of all of these other things. So that decision to hire always precedes naturally the decision to lay-off, and that may be where part of the math is broken and where part of the process is immature, if you look at the hiring mechanics and some of the patterns of these institutions that hired just crazily over a two-year period, and some of that may have been warranted and some of it may not have been. But it does beg the question, did we over-hire? And so sometimes it may be appropriate, it's probably always appropriate to evaluate that inflow of people to the organization, just as much, if not more than the outflow, because anything you solve upstream solves you all of the headache downstream, if you can get those things right.

0:32:04.3 Junior: So, should we have hired? Then, do we need to lay people off, is it a necessity, necessity? Do we really need to? And then should we lay people off, is it prudent? Those are two different questions, because as you talked about, Tim, they may be different.

0:32:22.2 Tim: Well, and Junior, when you say, "Do we need to lay people off," you need to ask yourself how you're asking that question, because when it comes to a potential lay-off, many employees have an expectation that the organization needs to sacrifice to some extent that means to sacrifice in profitability, to sacrifice in margins, and they expect you to depart, so to speak, from the, what we might call the Milton Friedman theory of the corporation, where it's not just purely, about shareholder return.

0:33:04.5 Tim: You have other stakeholders, you have a broader stewardship, and so if you default quickly and immediately to a lay-off, that's not only a disruptive dislocating event, it's a culturally disillusion-ing event. So how do you look at me as an employee, is there a loyalty that extends to a point that we will sacrifice profitability and margins to some extent. What does this mean? What is the nature of our relationship? These are the questions that employees ask, and the answers that they give themselves fuel their engagement, their productivity, their retention, their performance, these are the questions that they are going to be going through, so we need to ask those questions.

0:34:00.5 Junior: And that narrative is going to happen whether you inform it or not. So you mentioned the questions the employees ask themselves or the story the employees tell themselves, they're going to come to their own conclusions, even if there is some narrative that's coming from the organization, but especially in a vacuum, that vacuum of information will get filled with people's stories. And they will come to their own conclusions.

0:34:27.1 Tim: I just wanna make one last point too. Let's understand that the employees, especially if you're in a public company, are combing through the financials, and they will want to see evidence of financial distress if there's a bunch of money sitting on the balance sheet and there are no outward, visible, clear, obvious signs of financial distress in the organization, then a lay-off is going to be very hard medicine. So I just wanna point that out.

0:35:00.5 Junior: There's a story about Nokia, they shut down a big factory, if memory serves, in Germany coming off of their most profitable year ever. I can't remember how many thousands, but there was uproar, absolute uproar, and they lost revenue in that market, something to the tune of 30%, 40% over the ensuing 2, 3 year period and paid for it big time because of just that, there was nothing to point to. And I may be getting some of my details wrong, but there wasn't anything obvious to point to financially that would motivate the lay-off, it was... I do remember that labor became more expensive in that market and a few other things that led them to that decision, but they had come off of a very profitable year, and people didn't like that very much, and they ended up paying probably more for it in the downside of some of those second and third order consequences than perhaps they would have if they had footed the bill for the 20-30% increase in labor. Pretty interesting.

0:36:08.9 Tim: Junior, I'll give you a contrasting example.

0:36:10.4 Junior: Please.

0:36:12.6 Tim: There are times when the organization, the viability of the organization is at stake and you are struggling and full out austerity is justified. Years ago, when I was the VP of operations for a manufacturing firm, this was our reality. We had plunged into a state of negative cash flow. We were burning cash at a rate of about $2 million a month, the entire industry had been turned on its head, we went into a very deep and painful downturn and we needed to tighten our belts, we needed to do everything that we possibly could do to wring costs out of the business. And I remember that year, I was the plant manager after Thanksgiving and before Christmas, and it's still painful today, we laid off a 1000 production and maintenance workers, 1000. And I'll never forget, because after we did the lay-off, and all of these employees were represented by the union, the bargaining unit, and so we didn't have any discretion about who got laid off, it was a seniority based system, so they would just push them out by seniority. Incredibly painful thing to do. The very next week, I remember going to the home of one of the workers that had been laid off, and I went over there with a youth group, and we brought Christmas presents to the family, and here was the husband and the wife, and they had three little girls, and we were going into Christmas, and he had just been laid off.

0:38:00.4 Tim: I'll never forget that. I'll never forget that scene. I'll never forget the pain and the suffering that surrounded that. And there wasn't anything that I could do. As it turns out, the situation got worse and the company was plunged into bankruptcy, and I went through that entire experience incredibly painful. So I think we understand the realities the economic realities, of volatile and turbulent markets, of dislocations, of the economic cycle, of cyclical industries, we understand that. So I just wanted to counterbalance my last comment with that very personal experience that I went through.

0:38:46.0 Junior: I appreciate you sharing that Tim, that must have been a hard thing showing up at that door. When you think about the lay-offs to the tune of millions, and you think of all the households affected, it really does put it back into perspective. It's so easy, and I find myself even doing it in this podcast episode, is speaking at such a high level that it blurs out, you're up tens of thousands of feet and you can't see the cars on the ground, the people on the streets, until you zoom back in. And so when you talk about 10000 people here, 15000 people there, sometimes it's easy to disassociate just how personal it is, so let's say that we find ourselves in that scenario where it's in the best interest of the organization for... And that interest is informed by a whole bunch of stuff, let's just say for arguments sake, we find ourselves there. Lay-offs create a liquid moment in the culture of the organization. We talk a lot about cultures calcifying, becoming fossilized and difficult to change over time. Lay-offs, as you said previously, knock us out of orbit, and they do give us an opportunity to change what we might want to change, it's this liquid fluid moment that makes the organization more malleable, especially culturally, and it creates a vacuum that we can fill with new messaging, with new values or a re-commitment to some values, it allows us to take a new look at goals and mission, areas for improvement and growth.

0:40:25.9 Junior: And so what I thought was particularly cool about the Starbucks story was that that void was very quickly filled with, "This is what's next, this is what we're doing, it's something that was out of the flow of normal work," it's, "Hey, this is our re-commitment, here's some investment, this is where we're going." So it was a deliberate change in activity, it was this thing that was so unique, so outside of the norm, that I imagine people couldn't help but say, "Oh, they're serious, they're doing things differently, they're behaving differently than they did before, so maybe things will get better, at least they're doing something."

0:41:06.0 Tim: I think what you're saying, Junior, then is, if you have to do a lay-off, take full advantage of the opportunity, culturally, what else would you like to accomplish it? It should not be pure economics, what would you like to accomplish, how would you like to transform the culture, how would you like to shift the prevailing norms of that organization? 

0:41:29.0 Junior: That's right.

0:41:30.1 Tim: If you have to do it. Take advantage.

0:41:32.4 Junior: So how do we take advantage? There are a few opportunities that I can see, is to look at the goals, the values, and the mission at a very high level and communicate those throughout the organization and change them if need be, it's a great opportunity to change something like that, even though it's that high on the totem pole of mission, vision, values, if you wanna take a shot at one of those things, awesome time to do it. Rethink and redesign the workplace culture. The name of the podcast is Culture By Design, and the alternative is Culture by Default. If you're not intentional about culture through this period, it's going to be culture by default. And the default scenario, as we've probably come to the conclusion, through the last few minutes, is not great. And then it's a new opportunity to invest in the employees that are at the organization, Post- lay-off training, professional development, collaboration and teamwork. We also encourage taking new measurement. Measure after the fact to see where people are at, what are they saying, show them that you care, that you're listening about how they're feeling, what they might have to say. If you have a pulse on the culture of the organization in any quantifiable way through engagement in a psychological safety survey, that's something that you should use, it's a tool at your disposal to take measurement at the bottom of that maybe cultural trough and see where you're at.

0:42:56.5 Junior: Get people's opinion, get their voice to inform any subsequent intervention, that's something that employers often miss, something that we strongly suggest is to keep your finger on that pulse even tighter, maybe increase your frequency, even though there are attention and monetary costs associated with that, but the message that it sends to employees and the data that you get to inform your behavior, it's invaluable.

0:43:22.1 Tim: Very true. It's not always possible to measure it right before a lay-off, but if you have some time series data, if you have some longitudinal data, go find your baseline, and then at least do a measure after the lay-off, let it settle in a little bit, but soon after, do another measurement so that you can see where you're at.

0:43:41.7 Junior: Well, we've been through a lot today, a lot of data about a very sensitive issue, it's timely for most of us who've been affected by this some way somehow, or know someone close to us who has, and there's impact at all levels, at the institutional level, the whole unit, at the personal level, for those who are affected. And when I say affected, it's on both sides, whether you remain with the organization or not, you are affected. And it's not just economics, it's culture, and that's what we really hope to get across in today's conversation, is that there's a cultural impact to all of these decisions, and they should be weighted heavily, those cultural variables, both before and after some sort of action, like a lay-off. If we don't do enough due diligence on what might happen, what we're going to do when this happens, it will hurt us. So, alternatively, we've got to embrace the opportunity, approach the whole situation with empathy, with strategic planning, to turn a very challenging experience into a catalyst for positive transformation. Tim, what final thoughts would you like to leave us with? 

0:44:57.4 Tim: Yeah, just one final thought, and that is, sometimes leaders are very short-sighted when they do a lay-off. For example, I worked with an organization that did a pretty major reduction in force, they got really aggressive in cutting costs, and guess what they did? They wiped out their bench. All the bench strength that they had been developing during really the previous two to three years, they basically wiped it out, and so when the market came roaring back and they were back into a growth mode, they had no bench, and they were not able to meet the demand. So that was very short-sighted. So that's just one other thing that I would mention, is when you're doing a lay-off, you need to think from a long-term perspective about the intended and the potential unintended consequences, and you really need to think out their good ways and be careful that you're not going to hurt the organization, through self-inflicted wounds because you're so short-sighted.

0:46:03.2 Junior: Thank you for that, Tim. Thank you everybody for listening. Thanks for joining us on Culture By Design, if you found this episode helpful or insightful, please share it with someone who may benefit from it as well. Don't forget to leave a review and subscribe for more episodes on creating Culture By Design, and not by default. The links to the data that we shared today will be in the show notes, we'll see you next time, bye-bye.

0:46:33.1 Producer: Hey Culture By Design listeners. You made it to the end of today's episode. Thank you again for listening and for making culture something that you do by design and not by default. If you've enjoyed today's episode please be so kind to leave us a review, it helps us reach a wider audience and accomplish our mission of influencing the world for good at scale. Today's episode show notes and other relevant resources related to today's topic can be found at leaderfactor.com/resources. And with that we'll see you next episode.

Show Notes

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Episode Transcript

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