Case 1 The Aftermath of a Layoff: A Strategy Backfires

Case 1


Ron Lockly is sitting at his desk and wondering what has gone wrong. He is a manager at Electron, Inc., a company that produces consumer electronics, and he seems to be confronted with personnel issues almost constantly.

“It wasn’t always like this,” he is thinking to himself. “It’s business restructuring that’s causing all the problems. If we hadn’t changed, we wouldn’t have all these problems. Maybe we would have been a dinosaur, but we would have been a comfortable dinosaur. Sometimes it’s better not to change. It causes too much grief.”

The restructuring Ron is thinking about involved a recent change in how the company does business. Electron has both production and retail facilities. The company had traditionally focused on low-cost production and on providing consumers with low prices and quantity discounts. However, top management had decided to shift toward becoming a “higher end” producer and retailer. The new strategy required that almost all facets of the operation be changed or upgraded. Production needed new and improved equipment, increased automation, and a recognition of quality—not cost or quantity—as the department’s primary goal. Marketing had a major task in shifting the public’s perception of the Electron brand name. Retail outlets had to make changes to their showrooms and retail processes to convey a high-quality image.

In addition to all these functional changes, the new strategy required a new human resources mix. The top management team had determined that production workers would need more computer skills to work in a high-tech, team-oriented environment. Retail personnel would need to be more knowledgeable about the product lines (particularly at the high end) and be driven to serve the customers.

The company decided that the most effective way to make the needed HR changes was a layoff. This decision was made in a series of top management meetings. A layoff would be quick and send a clear message. The layoff approach would also allow the company to get rid of people who lacked the necessary skills or wouldn’t fit with the new business strategy. The company could then hire new people with the needed skills as replacements. In addition, the layoff approach would allow the organization to change very quickly. Rather than an incremental change over years (the time frame needed by training and development), layoffs would produce an immediate step toward the desired goal.

Originally, the company had planned to use performance appraisal records to lay off up to 1,500 workers. However, assessment of performance and skill levels left a great deal of ambiguity regarding who should be let go and who shouldn’t. In the end, the company eliminated approximately 800 workers.

The layoff has caused more problems than anyone anticipated. Many workers have filed or threatened to file lawsuits, mainly age discrimination suits. In addition, many managers and supervisors were very resistant to the idea of terminating workers and seemed to question whether it was really necessary. Morale has plummeted, and there doesn’t seem to be any easy solution to the problem.

Ironically, the layoff itself has become a stumbling block to hiring appropriate replacements. News of the layoff received a lot of press coverage, and it is now causing problems in recruiting new employees. For example, a number of promising job candidates proved impossible to hire after they heard about the layoff and its aftermath. Ron Lockly has personally talked with a number of the candidates, a couple of whom were his acquaintances and confided in him that job security is an important issue to them and that the layoff made them worry about the company’s stability. They had also heard rumours that additional rounds of layoffs would occur. Some of the new people who Electron had managed to hire weren’t working out as well as had been hoped. The surviving workers did not readily accept them and made it clear that long-time colleagues would not be easily forgotten. They also took every opportunity to complain to the replacements about what they perceived to be the company’s negative aspects. Now Ron is worried that the new recruits’ morale will be affected and that the organization’s performance will suffer.

Critical Thinking Questions


How could Electron, Inc. have conducted its layoff to avoid the problems it is now encountering?
What should Electron do about the problems it is experiencing? Specifically, is there a way to improve morale? Should rumours of further cutbacks due to financial difficulties be addressed? If so, how?
How can Electron reduce its recruitment problem? Should candidates be given information about the layoff? If so, how much? Should Electron willingly give information regarding its business strategy to job candidates, who may share this information with Electron’s competitors?
What could be done to orient new employees appropriately and lessen the negative effects of surviving employees’ complaints? Briefly describe a hiring process that could be used to ensure that new hires remain “on board” and enthusiastic about Electron, Inc.

Cooperative Learning Exercises

With your partner or team, summarize the major goal of Electron’s layoff action. Have each member list alternatives to layoff that would achieve the same goal. Compile the best options and share their advantages and disadvantages with the class.
Identify people in the class who have been laid off or know someone who has. Ask them to share the experience with the class and address the issue of using layoffs as a strategic tool.
With your partner or team, identify some ways that Electron can reduce its recruiting and hiring problems. Alternatives to hiring may be possible and should be considered as well. Select the best ideas and share them with the class.