Is downsizing the right thing, asks NCE
Sri Lanka as a small economy, in particular where the economic backbone is made up of micro, small and medium sized enterprises and dependent on export revenue for foreign currency generation is already facing a vulnerable situation. The country, like the rest of the world, is currently facing a challenging period both in terms of healthcare and an economic upheaval.
Exporters are experiencing dual supply chain shocks, where some cannot receive raw materials and some cannot secure orders from clients due to the lockdown in other countries. This has resulted in a halt in production, whilst many businesses reach a critical junction. Further, some of the exporters are facing issues with cancelled pre orders on already manufactured batches of products in terms of the economic slowdown around the world. In this light, many organisations have reported to take downsizing the employees as an alternative to stay afloat.
Laying off employees at a time like this will have detrimental effects, since redundancy is the last thing one would expect during a calamity. On a separate note, an organisation may feel that dismissal of certain number of employees would be a short term solution to address the current business turmoil, yet once the world recovers and recuperates, the business venture will require to grow creating a vacuum of experienced and skillful employees. In such a situation recruitment of new workers and training will come at its own cost, exponentially increasing the operational cost of the organisation. Besides it will not be soon enough that the new recruits will acquire a complete knowhow required by the business. As such downsizing could be seen as only a temporary solution to the crisis.
Whilst businesses are focusing on scaling down activities to a more realistic and manageable size under the circumstances, they also have a legal as well as a moral obligation towards their long standing employees who have contributed to the success of the organisation. Human capital, the most valuable resource in an organisation, ensures that business enterprises sustain its activities profitably in the longer term due to a high performing and effective workforce. Hence downscaling such employees may also have a negative impact on the goodwill of the enterprise with a negative public reception and loss of credibility.
Head above water
Even as businesses are struggling to keep their head above water, they also have to resort to any alternative methods in sustaining their business than moving towards drastic measures such as pay cuts and layoffs which impact the human capital of an organisation. When downsizing is a knee-jerk reaction, it has long-term costs. Employees are more likely to be the source of innovation and renewal during tough times. A best laid HR policy should be in place with the consultation of all other departments of the organisation in resolving the issues at hand. It is also important to note that in this situation the government has initiated beneficial relief packages for corporates by offering various concessions and debt moratorium through the banking system of the country to mitigate losses that could arise from adverse business sentiments.
Since the business sector especially the export enterprises plays a vital role in the economy, the state has announced these initiatives amidst the huge expenses currently incurred for the health sector, for which we have to be grateful and appreciative. On the same note the authorities ought to monitor and control how the concessions are granted in terms of a debt moratorium as some corporates may take undue advantage by utilising the grants given by the government and will not pass the benefit to their employees. In the end they might resort to pay cuts and also laying off their employees which will be considered as unethical and taking undue advantage during a crisis. Moreover, businesses can adopt best practices by business process re-engineering, involvement of employees in search for ways to reduce costs, waste and inefficiencies, diversification of business into related or non-related areas and encouraging employees to be innovative. Any organisation has a reputation to protect and best HR practices during a calamity will complement the status quo and will also sustain the business in the future.
On a more pressing note, businesses cannot perform employee redundancy in a haphazard manner as there are regulations laid by the Labour Department to protect labour rights. Business enterprises must stay apprised of the current legal landscape and ensure the operation complies with the rules as failing to follow labour and employment regulations can become quite costly.
Beyond the headline costs, are the potential chain reactions of negative economic impacts to countries around the globe. With every region at risk of natural and man-made disasters and supply chains and markets increasingly globally connected, it is becoming ever more important for businesses to develop robust disaster plans to reduce the potential impact. But to work out disaster plans, the starting point is to understand what that impact could be – and how events far from your core operations could hit your business.