Beware the hidden cost of downsizing

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As companies increasingly turn to retrenchments in response to pressures on their bottom line, they should beware the unintended but very real consequences that are likely to flow from a reduced staff complement, an expert warns.

“In many instances, the reduced profit due to staff disengagement could very well outweigh the intended savings on salaries and employee operating costs,” says Debbie Goodman-Bhyat, leadership strategist and founder of Jack Hammer, Africa’s largest executive search firm which recently expanded its footprint to the USA.

“If a company is under pressure, and then reduces its workforce to reduce costs, yet it doesn’t take proactive measures to ensure that the staff who remain are engaged and productive, chances are that it is still going to see lower profitability leading to a zero sum - or even negative sum – game,” she says.

According to a recent study on the subject by Gallup, disengaged employees have 37% higher absenteeism, 18% lower productivity and 15% lower profitability. When that translates into money, you're looking at the cost of 34% of a disengaged employee's annual salary, it was found.

And while the study looked specifically at USA workplaces, the findings are undoubtedly relevant locally, Goodman-Bhyat says.

“It is clear that as companies find themselves under pressure to deliver growth to shareholders while buckling under a myriad of negative external pressures, one of the few ways to do this is to cut resources. But this short-term strategy can and often does have the reverse effect, because the people left behind can’t simply double or triple up on their workloads to cover for those who have faced the chop,” she says.

And while retrenchments and layoffs for the purposes of cost-cutting are nothing new, this is increasingly taking place at management levels.

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