When it comes to cost-cutting, laying off employees might seem like a simple and immediate solution. After all, personnel expenses often represent one of the largest costs within organizations.
However, over the years, studies have shown that this practice can cause more harm than benefit in the medium to long term. Layoffs do not solve structural issues and, in many cases, may even increase a company’s costs.
According to The US Conference Board, 30% of companies that resorted to layoffs expecting cost savings saw an increase in expenses. Additionally, 22% of them ended up laying off the wrong employees, leading to the loss of valuable talent and the need to hire again.
Beyond the immediate impact, laying off and rehiring creates an expensive cycle. Deloitte indicates that 75% of companies that laid off employees to cut costs eventually had to rehire for the same positions within a year.
It’s worth noting that these costs include not only the selection and hiring processes but also the training and adaptation time for the new hire, who typically has lower productivity initially. In other words, the initial cost of a layoff (which is already not low) ends up being added to long-term investments to replace an employee who shouldn’t have left.
These figures reflect a concerning reality: layoffs may seem like a quick fix but fail to address deeper operational issues with more significant impacts on business costs, such as inefficient processes and hidden waste. In the end, they may actually generate more unnecessary costs.
McKinsey & Company points out that only 10% of attempts to cut costs through layoffs prove effective after three years. This is due to the fact that, without revising internal processes, companies end up redistributing unproductive tasks to a smaller team, potentially compromising the quality and efficiency of work.
For this reason, companies must focus on identifying which processes add value and which can be optimized or eliminated. Without this review, layoffs only exacerbate problems, placing an even greater burden on remaining employees.
A study by The Economist highlighted that companies surviving crises are those that know where not to cut costs. They prioritize strategic areas that ensure customer satisfaction and maintain processes that generate value. In other words, the secret isn’t in layoffs but in improving efficiency and ensuring that resources are being used wisely.
Instead of turning to layoffs as a cost-cutting solution, companies should focus on efficient cost management by analyzing processes, eliminating redundant activities, and keeping customer satisfaction a priority. The key to success isn’t cutting staff, but optimizing operations and allocating resources (including human resources) more strategically.
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