Managing Costs in a Downturn:
New Ways to Think About Layoffs
Harvard Management Update, June 2001

"Sure you can realize quick, short-term cost Savings" with wholesale staff cuts, says Perry J. Ludy, president of LudyCo International and author of Profit Building: Cutting Costs Without Cutting People (Berrett-Koehler, 2000). But those whose jobs are spared tend to be less productive. And when growth returns, "the good people you've let go have found work elsewhere." Ludy's advice: keep the people on the payroll but challenge them to come up with the cost savings you need.

"Downsize if you must, but don't do so with the usual last in, first out process," advises Herb Greenberg, president and CEO of the Princeton, N.J.-based human-resources consulting firm Caliper Management and co-author of How to Hire & Develop Your Next Top Performer (McGraw-Hill, 2001). Conduct a personnel audit, he suggests. You'll find that more than half your people are better suited to other jobs, while only a quarter are truly noncontributors. The others? "They're the 20 to 25% who are producing 80% of company revenues."

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