It was inevitable that as the world dives into recession and profits disappear into history that the reaction of the majority of companies would be to cut costs and make employees redundant. The cost of redundancy should never be measured by the immediate
balance sheet impact but should also take into account, the cost of have to re-employ people to take advantage of growth opportunities. It is the combination of both these things that will be the real cost to a company and this is something that most boardrooms
and certainly company accountants seem to miss.
In fact these combined costs can be even greater if the redundant employee moves out of the industry taking their skills with them. Of course the longer the recession, the more chance there is of losing skilled people and the greater the difficulty in recruiting,
when that becomes a priority. The skilled person will then be highly sort after, becoming a valuable property and thus will be able to command a top dollar premium from any prospective employer. If unable to find anyone with the relevant skills, the employer's
only option then is to take on someone less skilled and train them up. This not only takes time and incurs additional cost but can be another risk factor for the business.
The situation can become even more expensive if the required skills are only available offshore, then the company has to look overseas and possibly outsource their business, which may not be practical.
Since the end of the Second World War, Britain has lost most of its industrial might due to the boom/bust attitude in managing its employees. Chasing the market up and then following the market down can put any firm out of business.
What's needed is a more imaginative approach to employment!
Employees should be given the option of wage cuts rather than redundancy and the boardroom should be setting the example.
The costs of redundancy and re-employment are one of the greatest in any business and the ability of the board to manage economic downturns so as to not threaten, the long term potential of a good business is tied closely to their ability to retain valuable
staff through tough times and therefore be able to make full use of their skills, when the good times return.
How silly is it that a company who made redundant their skilled workforce in year one of economic crisis, then has to miss opportunities that arise in subsequent years, due to the lack of a skilled workforce.
Training staff and building corporate loyalty is a heavy investment for any company and taking the obvious short cut to cutting costs by redundancy is very short sited and certain to become a long term failure. More imagination by companies is needed to
find ways to retain staff and not throw the baby out with the bath water. Quite frankly the risk of redundancy should be avoided at all costs or companies are sure to suffer long term consequences. I wonder if the boards are imaginative enough to manage through
this recession. Recent announcements seem to indicate not!