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Gary Wright

Gary Wright - BISS Research

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Redundancy delays growth

30 January 2009  |  4747 views  |  1

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!      

TagsDealing roomsTrade execution

Comments: (2)

Slava Gnevko - AlphaNostrum Ltd - London | 02 February, 2009, 21:12

I've had a number exchanges recently that inevitably touched upon the British culture of 'hire-n-fire' (my Dutch colleague) with the meaning that very few actually understand the real cost of losing and hiring professionals, thus creating the 'arbitrage' opportunity for the pros when economy picks up - and.... the bubble cycle (i.e. inflated cost of labour) enters a new spiral.

The second set of reflections is about the global market for labour - the question arises about the real consequences to the industry and the economy as a whole due to outsourcing key roles in the downturn.

I say, the phenomenon created by these fire-n-hire cycles, erodes the opportunities for the release of real potential of legions of professionals. After their first 'fire', in their next 'hire' they will put substantial effort into playing politics (to avoid the next 'fire') rather than concentrating on the creative side of the job. That fuels the rise in conformist behaviour and desire to reap the most benefit until the start of the next ‘fire’ cycle.

This is called a survival instinct – the market place becomes a jungle…. Would you agree that after all shrinks like Z. Freud would be the ideal Heads of HR! But contemporary ‘hire-n-fire’ executives do not like to be analysed……

Slava Gnevko

A Finextra member | 02 February, 2009, 22:54

Thank you for your comment

I agree entirley with what you say and hope that firms begin to look at the overall costs of boom bust in the employment market. However i am afraid that firms boards and HR are just too reactive and look at short term rather than long term prospects. We can keep pushing for common sense 

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name

Gary Wright

job title

Analyst

company name

BISS Research

member since

2007

location

London

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