5 Reasons Why the Yahoo Layoffs Are a Bad Move

This week Yahoo announced that it is laying off 600 employees, about 4% of its total global workforce.

December 15, 2010

This week Yahoo announced that it is laying off 600 employees, about 4% of its total global workforce.

In some cases, significant layoffs are unavoidable - specifically in cases of structural deficits where the revenues have no way of meeting expenses. These layoffs, however, are usually much larger in scope than what is going on at Yahoo, and are accompanied by large-scale restructuring and changes of leadership. From what I'm reading, the Yahoo layoffs will only punish the people losing their jobs, while providing little benefit to the company (or shareholders).

5 Reasons Why the Yahoo Layoffs Are a Bad Move:

1. The Talent Myth: Companies use layoffs as a blunt tool to reduce costs rather than achieving these savings by cutting the highest salaries. The rationale is that reducing salaries of the top performers will be a disincentive, and the best employees will choose to leave the organization rather than accept a pay cut. This sort of reasoning puts way too much emphasis on "top performers," and not on the culture, organization and structure of the company. The most successful organizations create environments where everyone can succeed, and it is a myth to believe that a few talented individuals can drive company success. Yes, leadership matters, but true leaders are in their jobs for much more than their paychecks (and top earners make so much more than average employees that they can afford to give back some). If Yahoo had cut 10 percent of the salaries for the top 10 percent of the highest compensated employees would they have been able to avoid these layoffs?

2. Kills Risk Taking: Anyone who has lived through layoffs understands that people will start doing everything possible to keep their heads down. They begin to actively work to avoid risk taking, as failure is the fastest route to a layoff. In the technology world, however, risk taking is the only way that a company can advance. Companies need to fail fast and fail often if they are going to find the few products or services that will break through and offer high returns on investment. Does anyone expect Yahoo to take some big risks when the employees are preoccupied with layoffs?

3. Destroys Morale: Technology is a creative business. People can't be creative when they are worried about losing their jobs.

4. Erodes Loyalty: If layoffs are not viewed as truly a last resort the result will be a significant loss of employee loyalty for those who stay behind.

5. Poorly Targeted: Layoffs are most corrosive when they are across the board. If the headcount is too high, the best thing to do is to eliminate the areas of the company that are not performing. People understand when a company needs to focus resources on parts of the organization that have the highest potential. Getting a company to the correct size with the correct focus can ensure that the long-term prospects of the company are good. Closing a non-performing or low-growth division or product is painful, but this move at least demonstrates that management has the guts to make hard decisions.

I don't own any Yahoo stock, but if I did I'd be be selling.


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