Beware the pitfalls of downsizing, restructuring and employee redundancy

The last economic downturn to affect Australia saw a widespread cut back in apprentice training. While the effects weren’t experienced immediately,  the absence of new talent entering the workforce on such a large scale meant that it was nearly 10 years before Australia returned to the same level of technical skill it enjoyed prior to the downturn. Arguably, the detrimental impact of the “solution” turned out to be far more serious to the country than the initial problem.  This is just one example of the potentially harmful downstream consequences of downsizing and cutbacks that business is pursuing in the current economic climate.

Being mindful of the pitfalls of large scale downsizing and employee redundancy was the clear message that Heather Ridout, Chairman of the Australian Industry Group gave to business in a recent 7.30 Report Interview. Heather is not a lone voice in the wilderness on this topic. In the wake of weekly announcements that big business is shedding staff in mammoth proportions, other business and political leaders are joining a growing voice around the world warning of the consequences of these knee-jerk reactions to sustain short-term business viability.

One message is particularly clear. Forget for the time being who may be responsible for the current economic instability. While governments install bail out packages for the worst affected and revise monetary policies to encourage spending, the extent to which our economies travel headlong towards recession, is largely in the hands of business leaders.

Saul Eslake, Chief Economist of Australia’s ANZ bank is highly vocal on this issue when he reminds business that one of the definitive indicators of declining economic strength, is the unemployment rate. An indicator which is in the main controlled by the business sector.

While organisational restructuring and employee redundancies are a legitimate source of cost savings, there are a range of potential alternative measures to achieve cost control and efficiencies that business can explore before travelling down the path of downsizing and cutbacks.  

This leaves us with 2 messages for riding out the short term economic storm, and leaving our longer term legacy in tact: cost control before cost cutting; and employee redundancy as a last resort strategy and not the first.   

Di Worrall is an author, social commentator and change management consultant. For a FREE subscription to the newsletter – Creating a Climate for Change click on the following website  http://www.worrallassociates.com.au/

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