Many organizations are implementing cost-cutting measures. I have been stunned to learn that some companies are trying to cut costs by recalling hybrid and remote employees to the office and are thinking about implementing forced ranking with the intention of laying off the bottom five percent of employees. Both are bad ideas for belt-tightening—let me explain why.
Discussions with executives and a recent article in the Wall Street Journal brought this trend to my attention. The article explains that executives suggested these cost-cutting measures to Marc Benioff, the highly regarded CEO of Salesforce.
In 2021 Salesforce announced that it would reverse the hybrid work plans it had initiated during the pandemic and require more than 65 percent of its workforce to be at the office one to three days a week, or maybe even four days a week for employees who deal directly with customers. And this January, Salesforce announced plans to lay off 8,000 workers.
Calling employees back to the office will not improve productivity, increase innovation, or cut costs.
In 2012, I implemented hybrid and remote work plans at Medtronic in Santa Rosa. I found that employee productivity increased by 22 percent (as reported by the employees and their managers). We saved $2 million per year after remodeling our office areas to include fewer cubes and better facilitate video conferencing, collaboration, and group training sessions. We learned that open office bays reduced employee morale and productivity, and we stopped allowing office real estate to be a financial drain.
Back then, we did this to raise more investment money for R&D and to improve our ability to attract and retain technical talent. It worked!
The research bears out our savings. Why would any organization reverse these productivity increases and cost savings by requiring employees to spend more days in the office? Such moves can damage workforce morale—which is happening at Salesforce—and eventually drive-up turnover.
When we implemented hybrid work at Medtronic, we discovered that about 45 percent of the workforce could work this way, coming into the office one or two days a week, depending on their profession. The rest came in four to five days a week. We also had jobs in some technical fields that were 100 percent remote.
Our criteria were simple. If an employee could do their job from home or from the customer’s office (assuming they had access to a company computer with great internet and could communicate through videoconferencing, phone calls, and chat rooms), they could work from home. If an employee was required to work with technology in a lab or in manufacturing, or required access to files which were too sensitive for cloud storage, they had to come into our facilities. (Our employee–customer interfaces mostly took place in our customers’ offices.)
Even our cross-functional R&D and innovation teams, which were originally in the office 100 percent of the time, switched to three or four days in the office. They found that having one or two days at home to do heads-down work made them more innovative. Research has now borne this out.
Learn more about our experience implementing remote work here.
Now to the problem with laying off the bottom 5 or 10 percent.
This strategy was long practiced at companies like GE, Honeywell, and Ford. They believed in research by Professor Steven E. Scullen which said that the fastest way to improve productivity was to lay off the bottom performers and replace them with higher performers. Unfortunately, they discarded the part of his research which revealed that this strategy only works for a year or two. After that, it damages your culture, making employees more concerned about looking better than the next worker. Manager feedback and performance reviews turn into arguments over performance ratings. Collaboration and innovation are replaced with competition, and employees keep their heads down to avoid suggesting the wrong idea. In 2023, there is another reason not to implement forced ranking with layoffs: the 3 million person labor shortage. Learn more about the damage of forced performance rankings with layoffs here.
The survivors of layoffs understand the need for cuts when revenues are falling. They can move on after those coworkers are laid off if the laid off employees are treated well (such as not learning they were laid off by finding that their internet access was cut off in the middle of the night) and they believe the layoffs are over. But a company’s culture will suffer if layoffs become part of an annual practice to improve productivity. Additionally, the cost of labor lawsuits has driven some of the companies listed above to stop this practice.
By the way, Marc Benioff did not accept the forced-ranking-five percent layoff strategy, as reported by the WSJ article above.
During the downturn in business cycles, companies need to pivot and invest in winning strategies, business models, products, and services for their customers. Layoffs are, in many ways, inevitable, but don’t implement strategies that drive up your costs and reduce employee productivity and innovation, and raise turnover, such as calling hybrid workers back to the office and implementing performance rankings and annual layoff quotas.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and managing partner of InnovationOne, LLC. He works with organizations to transform HR and recruiting, implement remote work, and develop extraordinary leaders, teams, and innovation cultures. He is the author of the highly acclaimed book, Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. He is quoted in business journals such as The Wall Street Journal, Workforce Management, and CEO Magazine. Subscribe to his weekly blogs at http://www.VictorHRConsultant.com.